Winning with losers in the high yield bond market

Value to be had watching 'bad bonds'

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CIFC Long/Short Credit fund's Jason Horowitz
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CIFC Long/Short Credit fund's Jason Horowitz

I love the high yield market – in the intermediate to long term, I believe it could generate mid-single-digit annual returns against a global backdrop of $14trn of negative-yielding debt.

Like any market, though, it includes some poor bonds and endures periods of volatility.  Bond managers normally like to focus on how they pick winners and avoid the losers to mitigate risk and maximise returns. But if a fund can take short positions, then there is a lot of value to be had from paying close attention to 'bad bonds' rather than simply dodging them.  When people think of shorting they automatically think of 'bad bonds' from 'bad companies'. A 'bad company' is one that has too much debt and generates insufficient cash. It might be a retailer competing with a behemoth l...

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