Investors have long tended to take a regional approach to investment-grade credit, recognising that the US and European investment-grade credit markets behave quite differently.
But they have generally allocated to high yield in a global strategy. We believe it’s time for that to change.
That’s because the euro high yield market has grown quickly over the past decade and is now big enough to be seen as a standalone asset class. Since 2007, the market has quadrupled in size to over EUR 300 billion, mainly due to an increasing number of firms issuing bonds to raise funding. That’s more than wide enough to build well-diversified portfolios that provide exposure to companies from across Europe operating in the full range of sectors.
What’s more, the market’s growth only looks set to continue as European firms seek to reduce their dependence on bank funding. Meanwhile, investors are proving eager to invest in European high-yield debt in their search for yield in a low-rate environment.
At Kempen we believe that euro and US high yield should be seen as distinct asset classes. The two markets behave quite differently, and anyone sitting in the US running a global high-yield strategy is likely to have a difficult time grasping the supply and demand dynamics affecting high-yield returns in Europe. What’s more, global strategies tend to have a disproportionate weight in the US, neglecting the opportunities that Europe has to offer.
All this is why we provide investors with discrete access to the European high-yield market. Run according to the same tried-and-tested approach as our investment-grade portfolios, our European high-yield strategy exploits all the inefficiencies prevalent in the market in a way that would be difficult for a global approach to replicate.
And finally, in these turbulent times dominated by news about the coronavirus, the European high-yield universe has held up relatively well so far because of its limited exposure to oil companies. We believe that at the current spreads the Euro strategy is attractive.
To find out more about how our strategy could benefit you, register for our European High Yield webinar on 12 May.