HEAD-TO-HEAD: Pimco vs Robeco

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Global high yield bonds could face a more challenging period ahead after a bull run for the past few years as investors hunted for high yield products in the low interest rate environment.

“The cycle for high yield appears mature, reducing its appeal. In the US, net new cash flow into high yield mutual funds is near its highest level in three years; in Europe, the yield on high yield credit has fallen below the dividend yield on the EuroStoxx 50,” wrote Deutsche Bank Wealth Management Global CIO Christian Nolting in a recent report.

The firm remains cautiously constructive on the US and European high yield markets. “European high yield has seen significant issuance so far this year, but redemptions and upgrades mean that the overall size of the market is declining, allowing significant spread tightening. In the US, the default rate is expected to decline.”

Nonetheless, the asset class continues to perform well. The BofA Merrill Lynch Global High Yield Constrained Index, a benchmark used by Morningstar for its global high yield fund category, has had a return of 5% year-to-date and 17% in the past three years in US dollar terms, according to FE.

The index also outperformed the BofA Merrill Lynch global corporate bond and government bond indices on a rolling three-year and five-year basis, despite the energy sector crash within the high yield category in 2015.

“Global” high yield indices are heavily biased toward the US and Europe. For instance, North America and Europe account for roughly 56% and 23%, respectively, of the country weightings of the BofA Merrill Lynch Global High Yield Constrained Index.

Against this backdrop, Niels Faassen, Morningstar’s senior manager research analyst based in Amsterdam, provides a comparative analysis of the Pimco GIS Global High Yield Bond Fund and the Robeco High Yield Bonds Fund.

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