During the first quarter of 2025, the European Central Bank and the Bank of England cut rates as inflation fell, and markets reacted positively to an announced 1 trillion euro package for defense and infrastructure spending in Germany. Shorter-duration bonds outperformed longer-duration bonds—paving the way for high-yield fare, which typically has a shorter duration than investment-grade fare.
A flurry of strong earnings reports suggested that company fundamentals remained strong, helping to keep default levels at bay, which gave some comfort ahead of April’s tariff-induced uncertainty. While the Fed kept short-term rates unchanged in the US, anticipated cuts for the next quarters helped high-yield bonds outperform investment-grade bonds.
Against this background, we take a closer look at two funds in the Morningstar Global High Yield Bond category that are qualitatively rated by our analysts: AXA Global High Yield Bonds and Candriam Bonds Global High Yield.
People
Candriam’s global high yield strategy benefits from a stable and tight-knit investment team, earning an Above Average People Pillar rating. Thomas Joret has led this strategy since 2020, having been co-manager since 2016, and has shown considerable skill in both security selection and portfolio construction in the years since then. He is supported by co-managers Nicholas Jullien, lead manager of the Euro high yield strategy, and Jean-Claude Tamvakis, an experienced credit analyst. Although the research team lacks presence in the US and Asia, the members are very experienced and work efficiently together in this 9-member, tight-knit group.
On the AXA side, the team has recently regrouped following significant leadership changes in 2021, owing to the unfortunate passing of the previous lead manager. The team has since settled, but their high workload remains a concern, prompting an Average People Pillar rating. Michael Graham, who joined AXA in 2007, was appointed the strategy’s new lead manager and head of US high yield in 2021. He is supported on the US side by Robert Houle and Yves Berger on the European side. Chris Ellis joined in 2022 as the fourth co-manager. AXA’s analyst team is bigger than Candriam’s, with 11 high-yield analysts across the US and Europe. But the research bench has seen heightened turnover and shifting responsibilities.
Process
The Candriam high-yield team follows a robust bottom-up, value-conscious approach, which earns an Above Average Process Pillar rating. They gain extra points for cautiously managing liquidity and capacity over the years, with a number of thoughtful soft fund closures showing they are not just out to capture AUM. This is important, given that the strategy’s investment universe is more conservative than some peers, excluding financials and the lowest-quality CCC-rated securities. Within their concentrated portfolio, the team remains aware of relative valuations and does not hesitate to take profits as prices rise or to dissolve losing positions if stop-loss limits are reached, which can lead to fairly high turnover.
On the other hand, the AXA strategy uses a bottom-up, buy-and-hold approach. The team aims to generate returns by receiving income rather than relying on a potential rise in bond prices. As a result, the managers invest a significant portion of the portfolio in lower-quality (CCC-rated) securities, typically holding them to maturity. Aware of the risks, they focus on companies with improving credit trends, stable business models, and predictable cash flows. Furthermore, the portfolio often incorporates a core of shorter-dated bonds to help mitigate volatility from higher-risk issuers. This sensible risk-taking approach earns the strategy an Above Average Process Pillar rating.
Portfolio
The Candriam team follows a high-conviction approach to security selection within its restricted universe. While non-financial benchmarks became more common after the 2008 global financial crisis, many competitors will still often own hefty off-benchmark stakes in that sector, but this team does not. The managers do still have a 20 percent allowance for off-benchmark fare, but that typically goes to owning investment-grade debt in line with their long-standing higher-quality tilt—historically adding protection during periods of broad-based volatility. Off-benchmark CCC-rated credit exposure is kept to low single digits.
The AXA team makes full use of the credit rating spectrum, given the managers’ belief that lower-quality issues often provide an attractive risk/reward trade-off, especially for shorter maturities. In recent years, allocation to B-rated credits has ranged between approximately 40 percent and 50 percent, an overweight of 10 percent to 12 percent against its benchmark, while exposure to bonds rated CCC has been around 15 percent (around 5 percent overweight). The overweight in lower-quality fare is partially mitigated by selecting bonds that are closer to maturity, shortening the time period for unforeseen or unfavorable impacts.
Performance
The Candriam team’s wariness of yield-rich, low-quality credits has contributed to the strategy’s typically lower-than-average volatility. Combined with deft use of credit derivatives to adjust credit market exposure during periods of market turbulence, this has protected performance. Security selection has been the main driver of added value over time, but sector biases can also have an impact on relative performance. For example, the fund’s defensive stance helped it sail smoothly through early 2020’s bumpy market, but the team’s avoidance of financials also held the strategy back somewhat in 2021 and 2024 relative to peers.
The AXA team’s proclivity for lower-quality fare can detract when high-yield credit sells off, but their caution towards more cyclical sectors has helped balance this. For example, the fund’s underweight in more volatile areas of the energy sector helped during the coronavirus-driven selloff in the first quarter of 2020. The team also tread lightly in emerging markets, owing to their developed market benchmark. That helped boost returns in 2021 as China’s economic recovery stalled, and in 2022 amid spillover effects from Russia’s invasion of Ukraine. Albeit overall positive, security selection had mixed results in more recent years, putting a slight dampener on shorter-term returns.
Both strategies boast solid long-term returns, but sustainability-related constraints can impact short-term performance. The funds missed out on aerospace and defense names that rallied in the first quarter of 2025.
Jeana Marie Doubell is investment analyst fixed income EMEA at Morningstar. Morningstar is a member of Investment Officer’s panel of experts.