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.

Strategy at a glance

  1. The above are not investment guidelines or restrictions and are subject to change without notice.

  2. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any fund or security.

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

  • Focus on risk

    rotation versus sector rotation

  • Absolute return orientation

     

  • Continuity of core team

    with attractive long-term performance

Strategy at a glance

  1. The above are not investment guidelines or restrictions and are subject to change without notice.

  2. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any fund or security.

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  1. Risk Disclosures

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

  3. The value of the strategy’s portfolio may fluctuate in response to the risk that the issuer of a bond or other instrument will not be able to make payments of interest and principal when due. In addition, fluctuations in interest rates can affect the value of debt instruments held by the strategy. An increase in interest rates tends to reduce the market value of debt instruments, while a decline in interest rates tends to increase their values. Longer duration instruments tend to be more sensitive to interest rate changes than those with shorter durations.

  4. The strategy intends to invest in high yield instruments (commonly known as ‘‘junk bonds’’) which may be subject to greater levels of interest rate, credit (including issuer default) and liquidity risk than investment grade instruments and may experience extreme price fluctuations. The securities of such companies may be considered speculative and the ability of such companies to pay their debts on schedule may be uncertain.

  5. The strategy may invest in securities of companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Such investments involve a substantial degree of risk. In any reorganization or liquidation proceeding relating to a company in which the strategy invests, the strategy may lose its entire investment, may be required to accept cash or securities with a value less than the strategy’s original investment, and/or may be required to accept payment over an extended period of time.

  6. If a rating agency gives a debt instrument a lower rating, the value of the instrument may decline because investors may demand a higher rate of return.

  7. Disclosures

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

  9. These are not investment guidelines or restrictions and will be subject to change. Actual portfolio will differ.

  10. FEF Distributors, LLC (“FEFD”) (SIPC), a limited purpose broker-dealer, distributes certain First Eagle products. FEFD does not provide services to any investor, but rather provides services to its First Eagle affiliates. As such, when FEFD presents a fund, strategy, or other product to a prospective investor, FEFD and its representatives do not determine whether an investment in the fund, strategy or other product is in the best interests of, or is otherwise beneficial or suitable for, the investor. No statement by FEFD should be construed as a recommendation. Investors should exercise their own judgment and/or consult with a financial professional to determine whether it is advisable for the investor to invest in any First Eagle fund, strategy, or product.

  11. Definitions

  12. *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.

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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.

  1. Risk Disclosures

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

  3. The value of the strategy’s portfolio may fluctuate in response to the risk that the issuer of a bond or other instrument will not be able to make payments of interest and principal when due. In addition, fluctuations in interest rates can affect the value of debt instruments held by the strategy. An increase in interest rates tends to reduce the market value of debt instruments, while a decline in interest rates tends to increase their values. Longer duration instruments tend to be more sensitive to interest rate changes than those with shorter durations.

  4. The strategy intends to invest in high yield instruments (commonly known as ‘‘junk bonds’’) which may be subject to greater levels of interest rate, credit (including issuer default) and liquidity risk than investment grade instruments and may experience extreme price fluctuations. The securities of such companies may be considered speculative and the ability of such companies to pay their debts on schedule may be uncertain.

  5. The strategy may invest in securities of companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Such investments involve a substantial degree of risk. In any reorganization or liquidation proceeding relating to a company in which the strategy invests, the strategy may lose its entire investment, may be required to accept cash or securities with a value less than the strategy’s original investment, and/or may be required to accept payment over an extended period of time.

  6. If a rating agency gives a debt instrument a lower rating, the value of the instrument may decline because investors may demand a higher rate of return.

  7. Disclosures

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

  9. These are not investment guidelines or restrictions and will be subject to change. Actual portfolio will differ.

  10. FEF Distributors, LLC (“FEFD”) (SIPC), a limited purpose broker-dealer, distributes certain First Eagle products. FEFD does not provide services to any investor, but rather provides services to its First Eagle affiliates. As such, when FEFD presents a fund, strategy, or other product to a prospective investor, FEFD and its representatives do not determine whether an investment in the fund, strategy or other product is in the best interests of, or is otherwise beneficial or suitable for, the investor. No statement by FEFD should be construed as a recommendation. Investors should exercise their own judgment and/or consult with a financial professional to determine whether it is advisable for the investor to invest in any First Eagle fund, strategy, or product.

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