Lessons Learned

10 Lessons Learned Over 35 Years as a High Yield Debt Investor

“As a 35-year veteran of the high yield market, I have witnessed several economic and credit cycles. As a result, I have learned many lessons, which I share with our clients.”  –Mark R. Shenkman

  1. Investment managers who specialize in the high yield debt markets are better positioned to understand its idiosyncrasies than those who are more focused on other fixed income or equity products.
  2. Because downside losses are asymmetrical to upside gains, it is critical to understand the difference between investing in high yield securities and speculating on them.
  3. Style drift, or changing strategies, exposes high yield investors to unnecessary risks because the majority of issues are only marginally liquid.
  4. Risk-adjusted returns are more important than total returns; investors must be clear on how much risk they are willing to assume in order to achieve a stated return.
  5. Buying high yield debt securities is easier than selling them due to the limited dealer capital supporting secondary market trading.
  6. High yield debt markets are greatly influenced by the supply of new issues.
  7. The high yield bond market is not directly correlated to the U.S. Treasury market.
  8. Investors should not rely on rating agencies as the sole basis for their credit opinion.
  9. Always seek to place issuers’ corporate management view in the context of your own independent fundamental analysis.
  10. A conservative, defensive style is likely to generate solid returns with less volatility over the long-term.