US High Yield Credit

Reasons to invest

High income

We pursue a high level of income by investing in below-investment-grade US corporate bonds.

Business quality advantage

We invest in companies with solid operating models that have the potential to deliver stable and predictable free cash-flow.

Relative value

Our team uncovers attractively priced opportunities from across the capital structures and quality spectrum of companies in the high yield universe.

Track record

Federated Hermes’ High Yield Fixed Income Strategy has delivered strong risk-adjusted returns since its inception in 1978.

ESG integration

We develop a proprietary ESG rating for each company in the portfolio based on discussions with company management, analysis of debt holder stewardship, external data sources and conversations with EOS, our leading stewardship team, This helps us mitigate risk and discover new opportunities.

Quick links

We believe that bottom-up fundamental analysis focusing on the quality of an issuer’s underlying business has the potential to generate competitive returns over time.

Mark E. Durbiano, CFA, MBA, - Senior Vice President, Senior Portfolio Manager

Why US High Yield Credit?

Our definition of quality

Pure High Yield exposure

Experience and continuity

When Federated Hermes employs the term “quality”, we refer to the quality of an issuer’s underlying business – we find that ratings agencies tend to focus on leverage. We put a premium on a company’s ability to service debt through consistent and predictable free cash-flow generation, helping us build a more robust portfolio for clients.

The strategy is a true representation of the high yield market – we have no exposure to bank loans, emerging-market debt or derivatives, nor do we purchase equity securities. Meanwhile, Federated Hermes’ strategy has performed well through various, and sometimes violent, market cycles as we seek to limit risk in down-markets.

Our strategy is managed by an experienced and dedicated 14 person investment team with an average investment experience of more than 20 years. The strategy’s lead portfolio manager has been managing the strategy for over 44 years – all at Federated Hermes.

How we invest

Meticulous bottom-up research

Our methodology is defined by the meticulous research we conduct for each issuer. The investable universe consists of all high-yield bonds rated between BB and CCC with at least $200m of issuance.

Research involves:

Extensive meetings with senior management
Historical analysis of an issuer’s business
Analysis of the issuer’s industry
A profile of its financial position, honing in on the sources and uses of cash

Fundamental quality focus

We look for companies with niche products, pricing power and dominant market shares, preferring industries and companies that have predictable and consistent earnings profiles.
We incorporate ESG analysis and assess the company’s management.
Our analysts then construct financial models, assessing past performance in terms of growth rates and margins. We focus on the company’s ability to generate free cash-flow through its operating cycle and identify the relevant calls on that free cash-flow.
Companies with strong business models that employ an aggressive financial strategy are preferable to companies with weak business profiles and a strong current financial profile.

Relative-value analysis

Investment Philosophy

We believe that bottom-up, fundamental analysis focusing on the underlying quality of an issuer’s business has the potential to generate competitive returns over time.

Investment Process

Team

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Stewardship di EOS

US High
Yield Credit

Focusing on fundamental quality