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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 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 document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any research and analysis contained in this document has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. Any views expressed are the views of the fund manager as of the date of this document and do not constitute investment advice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. 

There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein.

The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance.

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