The US economy contracted at a rate of 0.3 percent in the first quarter of 2025. The slowdown in GDP growth was driven by a surge in imports, as US firms attempted to front-run tariffs. The first-quarter decline marks a sharp turn for the economy after GDP grew at a 2.4 percent annual rate in the fourth quarter of 2024.
The contraction is seen as an early indication that trade tariffs, which have already stoked anxiety among investors and pessimism among consumers and businesses, are weighing on real measures of economic activity. While the import surge may be a temporary phenomenon, there are broader concerns that a more pronounced economic slowdown may be ahead. High yield corporate credit spreads temporarily spiked in early April but subsequently tightened again, remaining on the tighter end of the range compared with historical levels.
In the current volatile environment, it is important for high yield managers to balance being nimble, with rigorous bottom-up security and sector selection. With that in mind, we take a closer look at two funds in the Morningstar USD High Yield Bond category that are qualitatively rated by our analysts: Lord Abbett High Yield and Neuberger Berman High Yield Bond.
People
The Lord Abbett strategy boasts a seasoned crew: Robert Lee and Steven Rocco are Lord Abbett’s co-heads of fixed income, and Christopher Gizzo is the deputy director of leveraged credit. Having each spent around two decades with the firm, the trio share a relative-value approach which is characteristic of Lord Abbett’s multisector roots—they are not the type to pursue the safest path in exchange for less return. The large 30-member analyst team helps provide them with breadth and depth of research ideas. This solid combination earns the strategy an Above Average People Pillar rating.
The comanagers on the Neuberger Berman strategy, Joe Lind and Chris Kocinski, have been working together for five years now—since Lind’s 2018 arrival and Kocinski’s 2019 promotion to comanager from the head of below-investment-grade research. However, the duo is still establishing their collaboration. The strategy has ample resources to compete against peers, given their 28 non-investment-grade analysts and seven traders, but the cohort have yet to show a competitive edge—resulting in an Average Process Pillar rating.
Process
Both these strategies are benchmarked against the ICE BofA US High Yield Constrained Index, but the Lord Abbett investment approach involves taking on slightly more credit risk relative to the benchmark. That credit stance is often tailored by the use of derivatives, which can help the managers act quickly when they see an opportunity arise. They can also use derivatives to create leverage, which has exacerbated gains and losses at times. While the team’s ample flexibility has been useful here, their high-octane approach adds considerable volatility which give pause for thought, resulting in an Average Process Pillar rating.
The Neuberger Berman approach is a value-driven strategy built on fundamental, bottom-up credit selection. The team focuses on downside protection and aim to minimize default risk, favoring larger, liquid high-yield issuers—but the process doesn’t otherwise stand out from competitors in a crowded category. In recent years the team made several sensible process tweaks, such as: adding the flexibility to hold bonds through direct borrowing (a lever already used by most of their rivals), and implementing stricter guardrails around single-issuer active weightings to reduce the impact of potential credit stumbles. The strategy earns an Average Process Pillar rating as we wait for these changes to bear fruit.
Portfolio
The Lord Abbett team pairs macro views with relative valuations to determine positioning, and the managers prefer to focus on overarching themes rather than individual line items. The bulk of the portfolio is invested in BB and B rated credits, but can tilt towards the lower-quality areas of the market. In addition, between 2014 and 2024, the fund’s duration has averaged 0.5 years longer than the average peer’s duration. That, coupled with the tendency to take more credit risk than peers, particularly in lower-quality CCC rated credits, has made the strategy more vulnerable to both credit stresses and interest-rate volatility.
The Neuberger Berman portfolio also holds a series of smaller bets, but are less prone to large top-down sector over/underweights. The team hold around 80 percent of the portfolio in B and BB-rated credit, only opportunistically dipping into CCC and BBB rated credit. This higher quality bias has helped keep them from exposure to deteriorating credits, other than a few missteps with defaults in 2023. The team keeps duration close to that of their benchmark and avoids non-US-dollar debt and credit derivatives. A multi-year underweight to the energy sector stands out, as the team are wary of the sector’s sensitivity to commodities, amplified by recent tariff uncertainty.
Performance
Lord Abbett’s relative-value approach has helped the fund deliver positive returns over the long haul, but exposure to riskier assets like equity and CCC rated debt has exacerbated drawdowns. The persistent overweight to duration also stung during 2022’s extreme interest-rate volatility, resulting in a 7.9 percent loss, 2.5 percent worse than the average peer’s decline. As a result, the strategy’s style can bite in the shorter term (which can admittedly span years), but its longer-term results have been strong overall.
Neuberger Berman’s value-conscious approach has historically had mixed results, resulting in a lackluster track record over time. For example, the strategy’s 22.7 percent loss in the pandemic-driven selloff (20 February to 23 March 2020), was about 1.8 percent worse than the average peer’s decline. But, thoughtful repositioning into shorter-duration midstream energy debt and fallen angel credits boosted the strategy toward the top of the pack during the subsequent rebound. Missteps in 2022 (from a poor timed increase in interest-rate positioning) and 2023 (albeit isolated credit challenges) leave them with an uphill battle to improve the strategy’s relative standing, but they appear to be on their way given 2024’s strong security selection in defensive sectors like telecoms.
Jeana Marie Doubell is investment analyst fixed income EMEA at Morningstar. Morningstar is a member of Investment Officer’s panel of experts.