EBM: You are Credit Analyst for the US High Yield team for Allianz Global Investors. What are the main characteristics of the US high yield market?
David Oberto: We’ve currently seen very good returns year-to-date within the high yield market, which speaks to the strength that we’ve seen in this market. We’ve seen positive growth within the asset class: it’s currently at $1.3 trillion. And when you compare that to the European high yield market at over $220 billion, we can see that there’s a significant disparity from just a size standpoint and where it stands within the global market. The US market makes up about 82% of the combined market, when looking at the US and the European markets, and it speaks to liquidity that’s available within the asset class within the US High Yield product.
EBM: Why does this market remain attractive? And what is your outlook?
David Oberto: We continue to be very constructive on the outlook for the high yield market. And there are a couple of factors that are driving that. We’re seeing 1) decreasing leverage ratios, and 2) increasing interest coverage ratios. When you combine those two factors with the fundamentals within the high yield market, plus the fact that we’re seeing record levels of new issuance, those are very good signs for the high yield market. And also the fact that the companies issuing new debt in the high yield market are seeing improving rates as well as improving fundamentals. So we continue to remain constructive on the asset class as a whole.
EBM: Do you expect to launch a short duration high yield fund?
David Oberto: This is something that’s been continually coming up. We do not currently plan to launch a short duration product. However, in the low interest rate environment that we’re seeing today and the search for yield and alternative to any interest rate risk, we understand that investors are looking for something different and that a short duration product could offer that to them. However, one of the aspects of the short duration market or portfolio that we would be somewhat hesitant on would be not only looking at the interest rate risk and hedging against it, but also the fact that managers need to be aware of the credit risk as well, and so not just managing interest rate risk. And so, from that perspective, it’s just one more thing for investors to think about when they’re looking at a short duration product. So we do not currently plan to launch one.
