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CONTRIBUTORS

Glenn Voyles, CFA

Corporate Credit Portfolio Manager
Franklin Templeton
United States

Jon Belk, CFA

Corporate Credit Portfolio Manager/Research Analyst
Franklin Templeton
United States

Key Takeaways

  • We believe there are compelling reasons why high-yield (HY) investors should consider moving up in credit quality amid recent spread compression. When the market is not paying investors much to assume risk, investors should take proportionally less risk.
  • Credit quality can be measured in numerous qualitative and quantitative ways, only one of which is the ratings agency categorization. Independent assessment by active managers can improve portfolio quality.
  • In the current environment where spreads are closing in on post-COVID-19 lows, we believe the potential benefits of increasing exposure to higher-quality credits within a ratings category and across ratings tiers outweigh the reasonable spread give-up. We also believe skilled active HY managers are well positioned to help investors make this evaluation.

 

Read the full paper to learn more about:

  • Why consider moving up the credit quality curve?
  • How is credit quality typically measured?
  • BB and B rated credits experiencing tighter spreads
  • Are CCC rated credits more reasonably valued?
  • Crossover investing – An alternative way to enhance quality
  • Up in quality, no matter how it is measured

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. 

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

Equity securities are subject to price fluctuation and possible loss of principal.

Active management does not ensure gains or protect against market declines.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton Investments (“FTI”) has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FTI affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

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