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Global High Yield celebrates its 10-year anniversary

Insight
11 May 2020 |
Active ESG

Our Global High Yield capability is 10 years old. Since the capability’s inception a decade ago, the global high-yield market has transformed beyond recognition. Not only has it doubled in size, but the number of issuers – and the average size of an issue – have also soared.

The composition of the market has also changed. Difference sectors have developed clout, while post-financial-crisis regulations means new instruments have emerged and capital structures have deepened. The market has also globalised, while environmental, social and governance (ESG) factors have gained prominence.

To find out more about changes in the high-yield credit market, watch our video.

Coming of age: 10 key changes in the high-yield market over the past decade.

*QESG Score: ranks issuers on a climbing scale according to their ESG quality

Podcast: A decade of change in global high yield

In episode 12 of Delta, Andrew ‘Jacko’ Jackson, Head of Fixed Income, and Fraser Lundie, Head of Credit, outline the 10 developments in the high-yield market (as highlighted in the above video) before focusing on the most impactful shifts . They also consider what the high-yield market offers active investors in the current environment.

Global High Yield Strategy performance

The strong performance of our Global High Yield Strategy since its inception has been driven by our dynamic approach to global credit, which focuses on relative-value investing across the capital structures of global issuers.

To achieve this, we combine top-down allocation across the global liquid-credit spectrum with bottom-up, high-conviction security selection that is enhanced by ESG analysis.

Figure 1. Net strategy performance v peer group median

Chart showing net strategy performance v peer group median
Source: Federated Hermes, as at 30 April 2020. Performance shown is in euros net of fees from 1 June 2010. Inception date 1 June 2010. Peer group is sourced from Morningstar Direct.

Figure 2. Gross strategy performance v benchmark

1 year
3 years (per annum)
Five years (per annum)
Since inception (per annum)
Global High Yield Credit Strategy
-6.19
0.19
1.75
5.98
Benchmark
-7.00
-0.94
1.26
4.88
Source: Federated Hermes, as at 30 April 2020. Performance shown is in euros gross of fees from 1 June 2010. Inception date 1 June 2010. Benchmark is the ICE BoA Merrill Lynch Global High Yield Constrained Index hedged to EUR.

Figure 3. Gross rolling-year performance

31/04/2019-31/04/2020
31/04/2018-31/04/2019
31/04/2017-31/04/2018
31/04/2016-31/04/2017
31/04/2015-31/04/2016
Global High Yield Credit Strategy
-6.19
4.52
2.58
10.32
-1.71

Source: Federated Hermes, as at 30 April 2020. Performance shown is in euros gross of fees from 1 June 2010. Inception date 1 June 2010.

Past performance is not a reliable indicator of future returns

Data is supplemental to the GIPS® compliant information that follows.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investment overseas may be affected by currency exchange rates.

Hermes Global High Yield GIPS® Composite

What lies ahead for the global high-yield market?

The coronavirus pandemic is disrupting the corporate landscape and we believe the high-yield market is set to evolve even further in the months and years ahead. With dividends in doubt amid the market sell-off, income-seeking investors are increasingly turning to high-yield credit as a source of income.

While some argue this is a short-term phenomenon, we believe that the dividend crisis may be the start of a more structural change. The rising prominence of ESG factors means that companies are under increasing pressure to invest sustainably. As a result, dividends and share buybacks will likely be under pressure even when the coronavirus crisis eases.

A key beneficiary of this should be high-yield credit: as an asset class that is contractually obliged to pay coupons, it has the potential to deliver more upside during the recovery periods following market drawdowns.

Interest rates have been slashed to close to zero and are likely to remain at record lows. In this environment, we believe that income will be in demand – something that global high-yield credit is uniquely positioned to offer.

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