Trading firms develop different strategies when making investments. Some promote high yield in low risk situations as the most likely route to success. Yet even with a developed strategy, as bond expert Thomas Kenny notes, a lot for the 2014 bond market is dependent on what happens with the Quantitative Easing Policy, a program created to “depress long-term bond yields in order to stimulate the economy.” This program has actually benefited those firms that seek out low yields as it has kept yields under levels that they would be trading without QE.
According to Head of US Fixed Income, Wes Sparks, when investment firms were still trying to figure out what kind of strategies they would employ in 2014, it made sense to reflect on 2013 scenarios. Last year, a total return of over 8 percent was produced by the global high yield index (which was an improvement on what most investors had predicted at the start of the year).
Experts at Rainer Investment Management believe that “the addition of high yield fixed income to an overall portfolio may provide a number of significant benefits, the most obvious being the possibility for increased income.” As well, high yields can offer three main benefits: lower sensitivity to interest rates, attractive risk-return profile and diversification.
The White Bay Group uses the high yield in low risk scenarios. Founder Uriel Cohen, White Bay Group does not always repeat the same strategy over and over, just based on history. The firm believes “just because a strategy has historically performed does not mean that success will continue in the future. [The firm] only invests with a full understanding of why a strategy should make money.”
At the end of the day, while investment firms may offer well-established strategies, the fiscal environment – that is constantly in flux – needs to be considered.