High Yield Outlook - Unlocking opportunities and avoiding pitfalls

14 March 2024


Expert: Thomas Hanson, Head of Europe High Yield, Aegon Asset Management Facilitator: Pan Andreas, Independent Consultant


  1. The case for investing in high yield bonds now, with the asset class offering elevated yield levels and defensive 'breakeven' characteristics
  2. High-yield bonds have historically delivered equity-like returns with much lower volatility over the long term
  3. Given tight spreads and increasing idiosyncratic challenges in lower-quality credit, the strategy is to focus on higher-quality issues that can still generate reasonable income levels


Discussion of perspectives on investing in the high-yield bond market, including the historical risk-adjusted returns and volatility of high-yield bonds versus other assets, current tight spread levels and high yields presenting challenges and opportunities, approaches to duration positioning given rate hike uncertainty, the importance of active security selection, and positioning for instability while seeking income.

Decisions focused on maintaining short duration exposure, increasing allocation to higher-quality high-yield issues, and overweighting UK credits.

A discussion on the preferences for maintaining moderately short duration exposure under uncertainty, balancing long-dated value opportunities versus downside protection.

The importance of active security selection, advocating for high-conviction active management with a concentrated portfolio versus benchmark-aware approaches

Emphasis on the importance of flexibility and a benchmark-agnostic approach to maximise the opportunity set.

The role of active portfolio allocation and investing only where the team sees value while avoiding market weights. By constructing a portfolio that is different to the index, the fund can produce returns that are meaningfully different than peers and global high yield indices.

Bifurcation is increasing across the high yield market, warranting a sharp focus on bottom-up selection to mitigate downside risk and capitalise on opportunities. This environment presents a ripe environment for active managers to deliver enhanced performance results relative to peers and the index.

Key takeaways:

  • Maintain short duration positioning
  • Increase allocation to higher-quality high-yield issues