4Q2023 - Opportunistic High Yield Commentary
Leveraged credit markets ended 2023 on a high note. The recent rally among risky assets, including high yield bonds and leveraged loans, erased some of the memories of what was a tumultuous year.
Read the full commentary & disclosures here
- The U.S. Opportunistic High Yield Composite generated positive returns in the fourth quarter.
- High yield bonds and leveraged loans produced gains in the last quarter of 2023, with high yield bonds outperforming their floating rate peers. Milder inflation and dovish Federal Reserve rhetoric helped drive interest rates meaningfully lower, which benefited high yield bonds.
- Although default activity increased in Q4 relative to the previous quarter, it remains below historical averages.
- Sector allocation effects for the Opportunistic High Yield representative portfolio were negative for Q4, largely driven by an overweight to Capital Goods. However, positive security selection in the Automotive sector provided some offset.
- Polen Capital did not make any significant changes to portfolio positioning during the quarter. Notably, however, we initiated a position in a leading manufacturer for the aerospace industry and exited our position in one of the world’s largest automakers.
- Although we anticipate volatility during the upcoming year, we believe current yield levels are attractive and more than compensate investors for the increased risk.
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