Despite a challenging market environment ahead for core fixed income allocations, high yield could be a good option for investors. However, the need to balance risk against maximizing yield is vital.
In the upcoming webcast, Don’t Go Passive: Why You Need Active Management in High Yield, Seema Shah, Chief Strategist, Principal Global Investors; Mark Cernicky, Portfolio Specialist, Principal Global Fixed Income; and Matthew Cohen, Head of ETF Sales Team, Principal Global Investors, will highlight the benefits of an active approach to navigating the fixed-income market, including a market outlook, and one strategy that consists of a concentrated portfolio of high conviction, income-producing ideas.
Specifically, the Principal Active High Yield ETF (NYSEArca: YLD) is an actively managed fund that seeks to achieve its investment objective by investing in below-investment-grade (commonly known as “junk” or “high yield”) fixed income securities, such as bonds and bank loans. YLD also invests in U.S. treasury bills, bonds, and other obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, investment grade bank loans (also known as senior floating rate interests), and preferred securities.
“Our security selection process results in a concentrated portfolio of our highest conviction, income-producing ideas,” according to Principal. “We seek to maximize income potential while managing risk.”
The active managers track a fundamentals, technicals, and valuations framework that instills a consistent research approach designed to identify best risk/return opportunities. The strategy also follows well-defined exit strategies to minimize capital losses.
Historically, high yield bonds provided comparable returns with lower volatility, according to Principal. High yield bonds have a low to moderate correlation to other fixed income asset classes, which may benefit investors in rising-rate environments. Additionally, the ETF structure may help provide liquidity and improve portfolio tax efficiency.
Financial advisors who are interested in learning more about the high-yield strategy can register for the Wednesday, March 23 webcast here.