In the Hunt for Income, It’s Wise to Broaden Your Horizons

Over the years, the high-yield markets have advanced to the point where investors can be increasingly selective about how they source income. Given today’s elevated yields and wide array of high-quality offerings, generating income doesn’t necessitate a white-knuckle roller-coaster ride. But it may require broadening your horizons. We believe investors looking to prioritize efficient income—maximizing income while managing downside risk—should consider a global, multi-sector approach.

Increasing Income Opportunities by Going Global

Sourcing efficient income typically includes US high-yield corporate bonds—that’s part of the recipe. But it’s not the sum total. In our view, some of the most compelling avenues for generating efficient income lie beyond US shores. The global high-yield corporate universe is roughly twice the size of the US high-yield market, so going global opens significantly more possibilities than a US-only strategy.

One of the biggest benefits of a global opportunity set is the ability to diversify portfolio risk. After all, one region of the world may be at an entirely different stage of the economic cycle than another while companies in the same industry may be operating under different interest-rate regimes—allowing for idiosyncratic opportunities at the issuer and security level. This kind of desynchronization means investors can pull different levers to target desired risk levels—allowing for a more defensive posture when needed.

We believe that investing globally can also shore up portfolio yields and help generate alpha. US high-yield bonds periodically outperform their global peers, and vice versa. These fluctuations in market leadership tend to occur in cycles. After several years of US high-yield dominance, global high yield has reasserted itself over the past 24 months. Over longer periods, the Bloomberg Global High Yield Index has outpaced the Bloomberg US Corporate High Yield Index by 0.9%, on average, since 1999 (Display)—a general trend we expect to continue over the next couple of years.