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Capital Group - 10 investment themes for 2023

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10 · 10 INVESTMENT THEMES FOR 2023 Shannon Ward is a fi xed income portfolio manager with 30 years of experience. She is a manager for American High-Income Trust®. At today's yields, high-yield bonds can provide attractive income to an investor's portfolio. Yields in the neighborhood of 8% help provide a buffer against bond market volatility, so the likelihood of earning a positive return is higher. History shows that when high-yield bonds yielded in the 7% to 8% range, the average two-year annualized forward return was 9.2%, and the average three-year annualized forward return was 7.9%. Yields have also jumped for high-yield municipal bonds, whose tax-exempt status add to their allure. We are continuously monitoring the economy and making investment decisions based on fundamental research. The premium investors pay to own high-yield bonds over comparable Treasuries suggest bonds are fairly valued and may widen as growth slows and consumers pull back on discretionary spending. I'm holding more liquidity than usual so I can take advantage of potential market volatility. I'm also positioning the portfolio with a degree of caution in case we enter a U.S. recession. While we are aware of the possibility of a contraction, I don't expect the same level of price volatility in the high-yield market that followed the global fi nancial crisis or the onset of the pandemic. The U.S. high-yield bond market is higher quality now (as defi ned by credit ratings) with just 11% of bonds rated CCC-or- below (as of December 31, 2022) versus 20% in December 2007. 9. Selective high yield Source: Bloomberg Index Services Ltd. As of 12/31/22. Yield to worst is the lowest yield that can be realized by either calling or putting on one of the available call/put dates, or holding a bond to maturity. Past results are not predictive of results in future periods. Yield to worst (%) 2 4 6 8 10 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Annualized returns when yields are between 7%-8%: Two-year forward: +9.2% Three-year forward: +7.9% Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index Strong returns typically followed periods of elevated yields

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