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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

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Leader in systematic equities across market cap weighted indices, smart beta and active quantitative strategies

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High Yield Fixed Income

High Yield Fixed income can distribute stable income and total return while dampening volatility relative to equities and adding yield relative to core bonds.

Active management and a focus on downside risk can help produce stable long-term out performance. 

We aim to generate consistent alpha in the top quartile relative to peers which over long periods leads to attractive peer comparisons.

Our Process

Our Strategy strives to maximize risk adjusted returns, and seeks superior absolute returns over a market cycle, with lower volatility than the broad market. Our approach involves maximizing the default adjusted yield and spread of a diversified portfolio, implementing a fundamental, value-driven investment style.

First, and foremost, our approach is about risk control. Default risk is the dominant risk factor, and all portfolio investments meet stringent, and quantifiable minimum “margin of safety” requirements.

Secondarily, we strive never to buy credit risk at the wrong price. An optimal, risk adjusted, portfolio construction combines dynamic fundamental, bottom-up selection, with continuous top-down portfolio risk management.

 

Margin of safety

Default risk is the dominant risk factor, and all portfolio investments must meet stringent, and quantifiable minimum “margin of safety” requirements.

Investment process

Furthermore, the investment process strives never to buy credit risk at the wrong price utilizing a default-adjusted yield and spread methodology and aims to maximise the default-adjusted yield and spread of a diversified portfolio. We have a strong credit research team that utilizes our process to allocate issuers that pass our stringent quality control one of our proprietary Risk Groups, which are used to identify attractive investment opportunities.

Contrarian risk positioning

Our tactical risk positioning relative to the broad high yield market is typically contrarian; often considerably divergent to peers and largely indifferent to a benchmark index.

While our investment process is rigorous in implementation, it is conceptually simple to summarize

Matt Philo

Co-Head of High Yield strategies

Investment process summary

  • Minimum yield screen: with "positive event potential" exceptions

  • Minimum margin-of safety requirements; quantified and stringently applied

  • Qualitative fundamental corporate assessments to further safeguard against default risk

  • Default adjusted methodology, focused on the spread premium necessary to overcompensate to estimated default risk

  • Catalysts for total return, expected to result in total returns above a coupon based yiel

  • Portfolio construction, combines bottom-up credit selection with top-down portfolio risk management

  • Credit risk control: managed by the dynamic, continuous implementation of the disciplined bottom-up investment process (as described above). Primary credit risks include: default, Negative Event and ESG risks.

  • Risk monitoring and review: includes daily portfolio reporting and analysis

Case study

August 2020

Renewed Growth in High Yield Market

• The US High Yield Fixed Income market has recently increased in size, after 6 years of modest decline, in sharp contrast to the very rapid growth of Leveraged Loans and Private Debt markets

• There has been a record new issuance year-to-date (August  2020) of relatively high quality bonds, with many secured bond deals

• Much of the additional High Yield market growth due to significant “fallen angels” (downgraded IG bonds)

• All of these trends have led to a 25-year low in HY credits rated B- or lower

Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, S&P LCD, as of July 31, 2020.
Past performance is not indicative of future performance.

Matt Philo

Senior Portfolio Manager, Co-Head of High Yield

    Jason Epstein

    Senior Portfolio Manager, Co-Head of High Yield

      Linda Grillo

      Head High Yield Trader

        Jonathan Mann

        SENIOR ANALYST

          Insights

          High Yield: Three Year Anniversary

          Our High Yield Group passed the 3-year performance anniversary at the end of April.

          22 June 2020
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          Q1 2020: High Yield quarterly update

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          24 April 2020
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          Podcast: The wind at your back; High Yield at 10% ...

          As COVID-19 wreaks havoc on lives and financial markets, we check in with our veteran High Yield Fix...

          14 April 2020
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