We ultimately see this sort of situation as the value that active management can add to investing. Active managers don’t have a mandate to hold any certain securities, thus they can pick and choose as to what they feel offers the best return level for a given risk profile.
As we look at this company, this is certainly the type of investment we would avoid. The high yield bond market still offers plenty of what we view as very attractive opportunities in credits that we see as solid companies at yields about 300 basis points or more above the yield level on this bond.
To use the cliché, as investors we want to get the best bang for our buck and active investors are able to do that while also managing risk.
1 Acciavatti, Peter D., Tony Linares, Nelson Jantzen, CFA, Rahul Sharma, and Chuanxin Li. “High Yield Market Monitor.” J.P. Morgan, North American High Yield and Leveraged Loan Research. April 1, 2014, p. 10.
This article was written by Heather Rupp, CFA, Director of Research for Peritus Asset Management, the sub-advisor to the AdvisorShares Peritus High Yield ETF (HYLD).