High Yield Strategy


Inception Date: NOV 01, 2004

Seeks to provide investors with a level of current income consistently in excess of U.S. Treasuries.

Investment Philosophy

We believe the high yield market gradually misprices default risk throughout the credit cycle.
In ebullient markets when credit spreads tighten, we believe default risk is underestimated and as such will move to higher quality, more liquid positions. In periods of market distress, when spreads are compensatory for the level of default risk, we will increase our positions in lower rated credits and add incremental credit risk to the portfolio. The team believes that rotating risk* in each phase of the high yield market cycle is critical to delivering consistent outperformance. 
 

Strategy Highlights

  • 08 flexible

    Focus on risk

    rotation versus sector rotation

  • Absolute Return Orientation

    Absolute return orientation

     

  • Consumer Icon

    Continuity of core team

    with attractive long-term performance

  1. *

    In this context, risk is defined as the use of high yield securities rated below the highest rated category of non-investment grade. High yield bonds include those that carry a rating such as Ba1/BB+ or lower by credit rating agencies. All high yield securities are considered "speculative" and are often referred to as "junk" bonds.

  • Edward Meigs

    Co-Head of High Yield Team and Portfolio Manager

    Industry start:  
    1988
    Year joined:  
    2011
  • Sean Slein

    Co-Head of High Yield Team and Portfolio Manager

    Industry start:  
    1988
    Year joined:  
    2011

Process

The team emphasizes a fundamental bottom-up research approach that drives the identification of investment opportunities in all market environments. The three phases of the process are:

  • 01

    Credit Cycle and Strategy Assessment

    The team believes that effective management through the high yield cycle is critical to delivering consistent outperformance. They begin by assessing the primary market and continue with an evaluation of the global economic outlook.

    • Assess the primary market
    • Focus on spreads
    • Evaluate the global economic outlook
  • 02

    Fundamental Research

    The emphasis is on bottom-up fundamental research that drives the identification of investment opportunities in all market environments. Research focuses on answering one core question: Does the enterprise possess the ability and willingness to successfully pay coupons and repay or refinance principal?

    • Deconstruct the financials
    • Understand the business
    • Valuation
  • 03

    Portfolio Construction

    The team approaches risk management at both credit-specific and portfolio levels.

    Credit-level risk management begins at the security level. 

    The team has the flexibility to invest in opportunities that they feel have an attractive “margin of safety” at the time of purchase. They seek to avoid issuances whose dynamics are unfavorable to high yield debt holders.

    Portfolio-level risk management begins by rotating risk 

    The team rotates risk by considering each phase of the high yield market cycle. In each phase, the strategy may move to overweight or underweight higher and lower quality credit tiers in order to add or reduce risk to the portfolio and to rebalance the portfolio's sensitivity to economic growth.

Annual Returns (%)

  1. Performance for 2004 is from November 1, 2004 to December 31, 2004.

  2. Past performance is not indicative of future results

Trailing Returns (%)

Period: 01-Nov-2004 to 31-Mar-20221st QtrYTD1 Year3 Years5 Years10 YearsSince Inception (Nov-2004)
High Yield (Gross) -4.32 -4.32 0.33 4.33 4.33 5.13 7.98
High Yield (Net) -4.43 -4.43 -0.18 3.60 3.56 4.35 7.20
Barclays Capital U.S. Corporate HY Index (Net) -4.84 -4.84 -0.66 4.58 4.69 5.75 6.77
Excess Gross Return 0.52 0.52 0.99 -0.25 -0.36 -0.62 1.22
Excess Net Return 0.41 0.41 0.48 -0.98 -1.13 -1.40 0.43

Disclosures

Year EndTotal Firm Assets (USD Millions)Composite Assets (USD Millions)Number of AccountsComposite GrossComposite NetMSCI EAFE Small Cap (Net)3Y ex-post Std. Dev. Composite3Y ex-post Std. Dev. MSCI EAFE Small CapComposite Dispersion
2021 111,364 230 Five or Fewer 4.35% 3.73% 5.28% 7.77% 9.00% N.A.
2020 108,794 272 Five or Fewer 8.47% 7.61% 7.11% 7.72% 9.24% N.A.
2019 96,434 296 Five or Fewer 9.91% 9.03% 14.32% 2.80% 4.02% N.A.
2018 91,890 572 Five or Fewer 0.49% -0.31% -2.08% 5.46% 4.59% N.A.
2017 116,057 462 Five or Fewer 5.74% 4.90% 7.50% 6.78% 5.57% N.A.
2016 99,086 590 Five or Fewer 18.19% 17.26% 17.13% 7.05% 6.00% N.A.
2015 92,369 681 Five or Fewer -6.21% -6.86% -4.47% 5.10% 5.26% N.A.
2014 99,470 994 Five or Fewer 0.58% -0.12% 2.45% 3.91% 4.50% N.A.
2013 92,511 1,128 Five or Fewer 7.80% 7.05% 7.44% 5.70% 6.41% N.A.
2012 72,916 756 Five or Fewer 16.17% 15.35% 15.81% 6.54% 7.08% N.A.
2011 59,646 37 Five or Fewer 5.47% 4.73% 4.98% 9.82% 11.09% N.A.
2010 26 Five or Fewer 17.03% 16.21% 15.12% N.A.
2009 25 Five or Fewer 60.33% 59.21% 58.21% N.A.
2008 19 Five or Fewer -15.01% -15.60% -26.16% N.A.
2007 16 Five or Fewer 2.31% 1.60% 1.87% N.A.
2006 8 Five or Fewer 10.69% 9.91% 11.85% N.A.
2005 5 Five or Fewer 9.44% 8.68% 2.74% N.A.
2004 1 Five or Fewer 3.92%* 3.80%* 2.71%* N.A.

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  1. Disclosures

  2. High Yield Composite contains fully discretionary high yield accounts invested primarily in the high yield, below investment grade instruments, including corporate debt and loan instruments. For comparison purposes, the composite is measured against the Bloomberg Barclays US Corporate High Yield Index. The asset mix of the accounts in the composite may not be comparable to the Bloomberg Barclays US Corporate High Yield Index. Indices do not incur management fees or other operating expenses. Investments cannot be made directly into an index.

  3. Prior to 07-Dec-2009, First Eagle Investment Management, LLC was known as Arnhold and S. Bleichroeder Advisers, LLC.

  4. First Eagle Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. First Eagle Investment Management, LLC has been independently verified for the periods 01-Jan-1996 through 31-Dec-2019. The verification report is available upon request.

  5. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The High Yield Composite has been examined for the periods 01-Nov-2004 through 31-Dec-2009 and from 01-Oct-2011 through 31-Dec-2019. The verification and performance examination reports are available upon request.

  6. First Eagle Investment Management, LLC is an independent SEC registered investment adviser. The firm maintains a complete list and description of composites, which is available upon request.

  7. Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Non-fee paying assets as a percentage of the composite’s assets on 31-December were 62.68%, 45.86%, 55.36% and 62.31%, for 2007, 2008, 2009 and 2010, respectively. Past performance is not indicative of future results.

  8. The U.S. Dollar is the currency used to express performance. Returns are presented gross and net of management fees and include the reinvestment of all income. The net of fees performance is calculated using the highest management fee of 0.80% applied monthly. Prior to February 2016 the net of fee performance was calculated using the highest management fee of 0.70% applied monthly. The change in fees used to calculate composite net performance was due to one of our larger funds being assessed a higher fee in February 2016. Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. From 01-Nov-2011 to 31-Dec-2013, return figures for client account that is a mutual fund reflect contractual waivers and/or expense limitations, without which net returns would have been lower.

  9. The investment management fee for separately managed accounts is 0.70% on assets. Actual investment advisory fees incurred by clients may vary. The collection of fees produces a compounding effect on the total rate of return net of management fees. As an example, the effect of investment management fees on the total value of a client’s portfolio assuming (a) quarterly fee assessment, (b) $1,000,000 investment, (c) portfolio return of 8% a year, and (d) 1.00% annual investment advisory fee would be $10,416 in the first year, and cumulative effects of $59,816 over five years and $143,430 over ten years. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

  10. The High Yield Composite was created 01-Nov-2004. Performance presented prior to 01-Oct-2011, is for accounts managed by Edward Meigs, CFA and Sean Slein, CFA while they were affiliated with another firm and had portfolio management responsibility. First Eagle Investment Management, LLC acquired the High Yield Team on 30-Sep-2011 from Dwight Asset Management Company. The High Yield Team and their investment process continues intact at First Eagle Investment Management, LLC, therefore the current composite performance is linking to the prior composite history.

  11. First Eagle defines "margin of safety" as the difference between a company's market price and our estimate of its intrinsic value. An investment made with a margin of safety is no guarantee against loss.

  1. Risk Disclosures

  2. All investments involve the risk of loss of principal.

  3. The High Yield strategy invests in high yield securities (commonly known as "junk bonds") which are generally considered speculative because they may be subject to greater levels of interest rate, credit (including issuer default) and liquidity risk than investment grade securities and may be subject to greater volatility. The strategy invests in high yield securities that are non-investment grade. High yield, lower rated securities involve greater price volatility and present greater risks than high rated fixed income securities. High yield securities are rated lower than investment-grade securities because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities.

  4. Investments in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner, or that negative perception of the issuer's ability to make such payments may cause the price of that bond to decline. Recent market conditions and events, including a global public health crisis and actions taken by governments in response, may exacerbate these risks.

  5. Bank loans are often less liquid than other types of debt instruments. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the borrower's obligation, or that such collateral could be liquidated.

  6. There are risks associated with investing in securities of foreign countries, such as erratic market conditions, economic and political instability and fluctuations in currency exchange rates.