We believe that bottom-up, fundamental analysis which focuses on the underlying quality of an issuer’s business can lead to strong, consistent performance within the high-yield market.
We aim to achieve this by searching the entire quality spectrum of the US high-yield market. Through our in-depth combination of qualitative and quantitative analysis, we seek to identify companies that demonstrate a solid operating model which can deliver stable and predictable free cash flow.
We also consider ESG factors in our investment process to uncover potential sources of tail risk. The US High Yield Credit team has developed a proprietary framework, the DESG rating system, which focuses on Debtholder Stewardship in addition to E, S and G, considerations. Given the complex leveraged capital structures of high-yield companies, we consider the analysis of how management and boards treat bondholders as another piece of the ESG mosaic (for more information, read our commentary ESG integration in Federated Hermes high-yield fixed-income strategies). In addition, we also work directly with EOS at Federated Hermes, our dedicated engagement and stewardship division, to gain unique insights into the implications of ESG issues on the industries and companies in which we invest.