2Q 2026 U.S. Opportunistic High Yield Commentary

The Polen Capital U.S. Opportunistic High Yield Composite (the "Composite") produced a total return of 2.07% (gross) / 1.95% (net) in the second quarter of 2026, lagging the ICE BofA U.S. High Yield Index (the "Index") by 38 basis points on a gross basis. Improving risk sentiment, tighter credit spreads, and stronger technical conditions drove broad gains across below-investment-grade credit during the quarter, with high yield bonds outperforming leveraged loans. By quarter-end, high yield spreads had tightened to 275 basis points, retracing the first quarter widening.

We continue to favor high yield bonds over leveraged loans and higher-rated issues relative to lower-rated ones, as we believe the relative value in today's environment favors higher-quality opportunities. Entering the second half of 2026, we view the widening dispersion across issuers and ratings cohorts not as a headwind, but as an opportunity for bottom-up credit selection.
 

What Drove Credit Markets in Q2 2026?

Risk assets staged a meaningful recovery during the second quarter as improving geopolitical sentiment — particularly perceived progress toward a ceasefire in the Middle East — reduced uncertainty and renewed investor inflows. While markets continued to digest a more hawkish Federal Reserve outlook and elevated inflation expectations, technical conditions improved considerably and primary market activity accelerated. The high yield market returned 2.45% for the quarter, recovering from its first quarter decline, while leveraged loans gained 1.85%. Within high yield, B-rated bonds led performance at 2.84%, followed by CCC-rated at 2.40% and BB-rated at 2.23%.

Primary market activity strengthened materially, with high yield issuance totaling $106.0 billion during the quarter, significantly exceeding the first quarter. Leveraged loan issuance remained equally robust at $214.6 billion. CLO formation continued to provide an important technical tailwind. We believe healthy primary market activity reflected borrowers' continued ability to access capital despite higher rates.

Which Issuers Contributed Most — and Least — to the Portfolio's Returns?

The top contributors to total return, based on the representative account within the Composite (the “Portfolio”), were Internet Brands and Oldcastle BuildingEnvelope, while the largest detractors were Baffinland and RealTruck. Relative performance benefited from the Portfolio’s income advantage, as well as its shorter duration profile as U.S. Treasury yields increased during the period. Contributions also came from holdings in the Media, Healthcare, and Telecommunications sectors. From a sector perspective, holdings in the Basic Industry, Technology & Electronics, Automotive, and Transportation sectors detracted from performance.

Internet Brands is a leading online media company operating across Health, Legal, and Automotive verticals, with the Health division — which includes the WebMD consumer health platform and a top-rated digital resource for physicians — representing nearly three-quarters of total revenue. The Company's capital structure rallied during the quarter after results showed decent growth and management offered encouraging forward-looking commentary. We remain constructive on the business, owing to what we view as resilient advertising bookings, continued programmatic growth in the Health division, and management's early progress deploying AI efficiencies across the cost structure. We also believe the recent rally has increased the likelihood that the Company can refinance its nearest-maturity First Lien Loan. The Portfolio maintains its position in the Second Lien Term Loan.

Oldcastle BuildingEnvelope contributed positively after the Portfolio  exited its position in the 9.5% Senior Notes at a price well above the previous mark following a negotiated transaction with the private equity sponsor.

Baffinland, which owns and operates a high-grade iron ore mine on Baffin Island, Canada, filed for CCAA creditor protection in May 2026 after unsuccessful amend-and-extend negotiations with respect to the 8.75% First Lien Senior Secured Notes due July 2026. We marked the position down following finalization of the Company's DIP financing. Notwithstanding the filing, our fundamental thesis remains unchanged — we continue to view the mine as a top-tier asset and expect bondholders to be repaid at par over the next 12 to 18 months as the court-supervised sale process progresses. The Portfolio maintains its position in the Senior Secured Notes.

RealTruck completed a liability management exercise, extending term loan maturities and exchanging its 6.25% Senior Notes due 2029 into new 6.25% Second Lien Notes due 2031. We believe the transaction was necessary to address near-term liquidity and upcoming maturities amid softening consumer demand and tariff-related cost pressure, though participation resulted in a mark-to-market loss with respect to the 6.25% Senior Notes due 2029. We believe the extended maturity profile positions the Company to recover over time.

How Is the Portfolio Positioned Entering the Second Half?

Trading activity during the quarter was limited, resulting in only modest changes to positioning. We continue to favor high yield bonds over leveraged loans and higher-rated issues relative to lower-rated ones. A notable purchase in the Portfolio during the quarter was Meridian Arc's 6.25% Senior Secured Notes due 2031. Meridian Arc is developing a large-scale, 430MW critical IT load data center campus in Indiana, backed by Google lease guarantees. We believe the combination of contracted cash flows, strong asset coverage, and robust structural protections offers attractive risk-adjusted returns.

What Is the Team's Outlook for High Yield Credit?

Macroeconomic uncertainty remains elevated, credit spreads remain tight by historical standards, but we believe absolute yields continue to offer attractive income relative to much of the post-financial-crisis period. Beneath the surface, dispersion across issuers and ratings cohorts has continued to increase — higher-quality borrowers have generally maintained favorable access to capital, while lower-quality issuers have faced greater scrutiny.

We believe this widening dispersion is not a headwind but an opportunity. As dispersion widens, we believe investors have greater ability to differentiate between issuers with durable business models and those facing deteriorating credit profiles. Our investment process remains unchanged: bottom-up fundamental research, disciplined risk management, and conviction in issuers that we believe can perform across a range of market environments.

Past performance does not guarantee future results. The commentary is not intended as a guarantee of profitable outcomes. The Portfolio is an account within the Composite that Polen Capital has deemed the most representative of the Composite strategy among all accounts managed by Polen Capital within the Composite. Contractual investment guidelines and length of track record are the most important factors in determining the representative account for the Composite strategy. The Composite strategy statistics provided are based on the representative account, are included as supplemental information and complement a GIPS Composite Report, which is available upon request.  Please see Important Disclosures in the full commentary.