A flexible approach that seeks to be a ‘fund for all seasons’
Our goal in this strategy is to be a fund for all seasons in the sense that we want to deliver good returns for our investors in all types of credit environments. Now, while we can invest in other things in a limited band such as convertibles, equities, non-US companies, the goal is to keep this strategy US focused: high yield bonds, cash pay bonds. Generally speaking, over the years about 90% of the portfolio at all times has fitted that mould.
The way we think about the market is: globally there are about 1,700 companies, domestically there’s about 1,200 depending on whose benchmark you look at, and the idea of this fund is to focus mostly on the US part of opportunity set, which is the traditional part of the high yield market.
The nice thing about this fund is that we have the flexibility to invest in other things [for example] non-dollar denominated securities up to 20%, we can invest in things like convertibles, derivatives, EM (emerging market) bonds, corporates, even investment grade bonds that we think are attractive, up to 20%. The traditional way that we’ve actually managed the portfolio is that ‘other stuff’ is only about 10% of the strategy.
Our strategy is a pure high yield strategy made up mostly of US dollar denominated high yield bonds. It’s also a fund for all seasons in the sense that we can get defensive when we feel we’re at an extreme part of the credit cycle and we can get very aggressive when we’re at the extreme part of the credit cycle.
We generally don’t do a lot of derivatives, and the reason for that is that single name CDS (credit default swaps) are not available on a lot of the smaller companies that we like to invest in, and we find that that market is pretty illiquid as well.
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