Ulrich Gerhard (BNY Mellon IM): “Don’t underestimate the power of the coupon. This is what will protect you from volatility.”

“The situation is not comparable to what it was in 2008. The level of leverage for high-yield companies is not at the same levels and companies have strengthened,” defends the BNY Mellon Global high-yield fund manager.

In troubled times, seniority is an advantage that should not be underestimated. Ulrich Gerhard managed professionally at High-yield short-term debt Since 1998, almost since the birth of the asset class. Having lived in all kinds of markets during his 25 years of experience, the Director of Insight sees a BNY Mellon IM store as a sweet spot in current ratings. “It’s a good time to invest in high returns,” he says.

Despite the complex overall scenario we find ourselves in, where The surprising power of economies Making it difficult to contemplate an inflation rate of less than 2%, the manager wanted to send an opportunistic message to clients during his recent visit to Madrid. “Never underestimate the power of a coupon. Which will protect you from this volatilityhe insists.

Stronger fundamentals

Gerhard understands High yield concern On the brink of a slowdown or even a downturn in the global economy. He understands it, but he does not share it. “The situation cannot be compared to what it was in 2008. The level of leverage for high-yield companies is not at the same levels and the companies have strengthened,” he defends. To provide numbers that support his argument: In 2008, 17% of high-yield companies had a CCC rating; today that percentage is 12%. 55% Of the universe currently is BB and in 2008 most of the universe was B. In other words, the quality of the current high return is higher than that of the Great Financial Crisis.

Another indicator that gives the manager peace of mind is the maturity period of the problems In the market. As you remember, waves of defaults occur when a company needs to refinance its debt in a context of high volatility. Luckily, A large part of the companies took advantage of the ample liquidity for the years 2020 and 2021 to prepare their capital. In fact, there are hardly any high-yield issues maturing in the coming months.

And even if there was, the management team made sure it wasn’t exposed. “We do not have any bonds in the portfolio maturing in 2023“,” A sentence. “Because that tells me the CFO didn’t do their job, they took the risk of not refinancing their debt last year or the year before.”

The keys to the BNY Mellon Global short-term high-yield bond fund

Gerhardt’s first professional foray into the short-term high yield market was with Gulf International Bank. As an institutional investor, the focus in the state was not on taking excessive risks that would result in the loss of capital. His return-building philosophy with an emphasis on capital preservation continues to shine through in his management of the BNY Mellon Global Short-Dated High-Yield Bond Fund.

We can say that the fund has a certain bias towards quality issuers. “If I’ve learned anything in my years in the high-yield market, it’s that if you invest in the bottom of the barrel, you’re going to get screwed,” says the manager. Thus, bottom-up credit selection is one of the strengths of this strategy Rating of individual funds 2023. In realityIn 2022, the bulk of returns are generated by version selection.

Another differentiating element of the investment process is that the management team looks for companies that pay off their debts before maturity (what is known in the industry as “to call a loanThe company pays a premium in addition to the share capital.

They are currently finding a file Sweet spot in the two-year version. because? “I feel like I can get a two-year view of the company’s cash flow and also, given the inversion of the curve, the short term is currently paying more than the long term,” he explains. And within this niche, the manager shows a preference for European companies over American ones.