The article sheds light on the excellent year in terms of performance of high yield funds and it explains why this occurred and what are opportunities and perspectives for this asset class. The product Eurizon EasyFund Bond High Yield R, created by Eurizon Capital SA and managed by Eurizon Capital SGR, was among the 10 best performers on the European market (1,3,5 year horizon, data as of October 15th 2012).
The fund managers Raffaella Tommaselli and Elena Musumeci confirm the great capital inflow on high yield funds during 2012 and they think the liquidity buffer still present on the market will probably continue to support these products. Challenges to this view focus either on political risks such as delays in the ECB’s outright monetary transactions (OMT) program, or from the macro picture in terms of further weakening of Southern European economies.
Tommaselli and Musumeci also believe that opportunities are in cash flow-generating companies with steady business models that could absorb a slump. “The classic bull case for high yields would suggest to overweight the high leverage/low rated/highly cyclical names as it relies on the growth in the economy. But, as a result of constructive stance coming from a reduction in the tail risks in the eurozone and uncertainties on the macro picture, it is appropriate to focus on the strongest credits, avoiding negative free cash flow companies in very cyclical sectors (typically B3/CCC bonds)”.