Discretionary manager Brewin Dolphin has said the outflows from high-yield bonds in recent weeks have presented an attractive buying point for “patient investors”.
High-yield markets have suffered four straight weeks of outflows, and are now in negative territory in terms of overall flows so far this year.
Brewin Dolphin’s Ben Gutteridge, head of funds research, said the sell-off may have been sparked by investors being “anxious to the threat of less accommodative monetary policy” as economic data improves.
But Mr Gutteridge said the sell-off may be premature and said investors should not expect a full-blown rout in high-yield bonds.
He said that, in spite of comments from certain members of the Federal Reserve, it was still likely that US interest rates would be kept low for longer.
And in that environment, Mr Gutteridge said investors would once more turn to high yield to satisfy their demand for income.
He said: “With economic conditions improving, bank-lending criteria loosening, and short rates fairly well anchored, we are doubtful investors will sacrifice the yield on offer in lower-quality bonds and move into cash or government bonds.
“We are also sceptical that holders of high-yield bonds would be motivated to switch into equities, given the pervasive overweight that already exists in this asset class.”
So although he acknowledged further short-term headwinds for high yield, Mr Gutteridge tipped the Barings High Yield Bond fund for those investors willing to wait out the current volatility.
