US volatility
Still, Rayner points to volatile US high-yield energy spreads that remain highly correlated with the price of oil, but that have not widened so far this year relative to the market in general.
“The real story this year has been a more broad-based widening, illustrated by how the US high-yield industrials spread has been on a consistent widening trend versus the spread of the sector as a whole, compared to moving in synch in 2014.”
He adds: “So, corporates more generally are feeling the heat. We know from the latest earnings season that the corporate revenue environment remains pretty poor and corporate earnings are now struggling too.
“We also know that corporate debt refinancing is coming under pressure, as investors have an eye on a Fed that appears keen to raise interest rates.”
Investment grade preference
Richard Woolnough says he has around 28% of his £17bn ($25.5bn, €24.1bn) M&G Optimal Income Fund in high-yield, though he presently has a preference for investment grade.
“Our high-yield exposure tends to be quite short dated,” he explains.
“Neutral for me would be 33%, and it’s probably been as high as 50% in the fund’s life. We have bias towards good quality US companies – at the higher-rated end.”
This includes a bias towards cable and telecoms companies, including Liberty Global, owner of Virgin Media.
