High Yield
US High Yield Constrained Composite
Inception Date: 1/1/1996
Benchmark: Barclays Capital US Corporate High Yield 2% Issuer Capped Bond Index*
US High Yield Unconstrained Composite
Inception Date: 7/1/2005
Benchmark: Barclays Capital US Corporate High Yield 2% Issuer Capped Bond Index
US High Yield BB Composite
Inception Date: 10/1/2000
Benchmark: Barclays Capital US Corporate BB High Yield 2% Issuer Capped Bond Index
Global High Yield Composite
Inception Date: 10/1/2008
Benchmark: Barclays Capital Global High Yield ex-CMBS/EMG 2% Capped Index
Aviva Investors High Yield Fact Sheet
Description:
Our approach to managing high yield bonds consists of investing primarily in BB and B credits while opportunistically investing in CCCs, where investment guidelines permit, based on proprietary fundamental research combined with strict risk-controls. This approach has been consistently applied since 1996 and has produced strong risk-adjusted performance versus the benchmark and our peers since inception.
The high yield investment process starts by deliberately defining the risks that the portfolio will and will not take. This risk framework is articulated in an Investment Policy Statement for the client and is the beginning to our risk management process. An example would be requiring the portfolio to exclude equities, emerging market debt, structured debt, unhedged currency, etc. and requiring all investments to be made in corporate, high yield rated debt. The Investment Policy Statement also defines the industry and issuer diversification parameters.
The portfolio construction process focuses on four main sources of alpha generation: quality tiers, industry allocation, security selection, and hedged currency (for the global high yield strategy). Security selection via stringent fundamental analysis, scenario testing, capital structure, and covenant evaluation is our cornerstone in high yield bond research and management. Each of our 24 U.S. and European based credit analysts has a narrow industry of coverage allowing them to be an industry specialist, knowing the drivers of that particular business and risk profile of the companies within the respective industry. We focus on the two main idiosyncratic risks within high yield being: 1) the probability of default and 2) the severity of loss. Our comprehensive process entails having an intimate knowledge of each of these risks with each analyst also assessing whether the risks are priced appropriately via a valuation assessment. Over a full market cycle attribution analysis shows security selection as the consistent source of value-added.
*From the inception date to May 31, 2005, the benchmark for the US High Yield Constrained composite was the Barclays Capital U.S. Corporate High Yield Bond Index; beginning June 1, 2005 the benchmark was changed to the Barclays Capital U.S. Corporate High Yield 2% Issuer Capped Bond Index. The 2% Capped Index is identical to the Corporate High Yield Index with the exception that exposure to any issuers is limited to 2% of the total index.
Commentary
In the second quarter of 2010, the Barclays Capital U.S. High Yield Constrained Index recorded the lowest and first negative quarterly return since 2009 of -0.06%, bringing the year-to-date return to 4.45%. We believe the recent re-pricing of risk has made the valuations of many high yield companies more attractive. With yields at around 9.0%, spreads above historical averages and expectations for default rates to drop below 2.0%, the high yield market sits on a comfortable cushion should investors start de-risking again. In addition, we believe the corporate fundamental outlook will remain positive, and U.S. economic news will continue to be robust. We recommend a moderate overweight to high yield with a focus on BB and B rated bonds.
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Fact Sheet
Aviva Investors provides detailed composite information including performance and portfolio characteristics on a quarterly basis. Please follow the link to view this quarter's high yield fact sheet.
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Investment Process
Aviva Investors seeks to customize investment solutions to the client's objectives, including spread/return objectives, rating agency guidelines and risk parameters. Those objectives are the foundation for our five-phase investment process.
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Research Framework
Aviva Investors uses the FTV framework as the cornerstone of our investment process: Fundamentals, Technicals and Valuations.
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