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A Few Things About High Yield You Never Knew

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A brief look at the risk and return characteristics of high yield bonds and why over the time high yield bonds have been a far better investment than equities.

A brief look at the risk and return characteristics of high yield bonds and why over the time high yield bonds have been a far better investment than equities.

Published in: Business, Economy & Finance

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  • 1. A Few Things You Should Know About High Yield Bonds (but were afraid to ask) London: 16 High Holborn, WC1V 6BX  Prague: Klimentska 1216 / 46 110 29 Praha 1 T: +44 20 8616 7311 F: +44 20 8616 7499 T: +420 222 191 008 F: +420 222 19 1200 This publication has been prepared by Symfonie Capital (Symfonie) for information purposes only. It is not an offer or solicitation for the purchase or sale of any financial instrument. Reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, but no representation is made as to its accuracy or completeness. The views and opinions expressed in this document are those of its author(s) and do not necessarily reflect those of Symfonie. No reliance should be placed on this document for the purposes of making an investment decision. Neither Symfonie, its officers, directors, nor the author(s) of this document accept liability for any loss arising from any investor arising from any decision to rely on this document. Symfonie, its affiliates and any of its or their officers may have financial interest in any transactions, securities or commodities referred to herein. Symfonie, or its affiliates, may perform services, for, or solicit business from, any company referred to herein. This document is confidential and proprietary to Symfonie. Transmission or publication of this document without the express prior consent of Symfonie is strictly prohibited. Symfonie Capital reserves all legal rights in connection with the publication of this document. © Symfonie Capital 2012.
  • 2. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 2 High Yield Beats Equity in the Long Term • Between 1995 and 2012 European High Yield returned 377% while European Equities returned 176%. • Between 1986 and 2012 US High Yield returned 1040% while US Equities returned 650%. Source: Bloomberg, CSFB, S&P 500, DowJones Stoxx 50 US High Yield vs. Equities 0 200 400 600 800 1000 1200 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1986 - 2012 Index1986=100 High Yield Bonds Equities European High Yield vs. Equities 0 100 200 300 400 500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1995 - 2012 Index1995=100 High Yield Bonds Equities
  • 3. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 3 High Yield Offers Rewards Source: Credit Suisse, Symfonie Capital, Data through 31 December 2009 High Yield and EM offer significant yield premium to BBB Many BB and BBB EM corporates have much better credit metrics than high yield counterparts, but offer same or better yields Good credit research brings rewards over time. Bond Spreads - Higher Rated 0 200 400 600 800 1000 1200 1400 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012 Spreadvs.Benchmark (bp) WE BBB BBB EM Corporates Split BBB HY Bond Spreads - Lower Rated 0 500 1000 1500 2000 2500 3000 3500 4000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012 Spreadvs.Benchmark (bp) WE BB WE B EM BB EM B
  • 4. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 4 High Yield is Less Volatile Than Equities Source: Credit Suisse, Bloomberg, Symfonie Capital,, S&P 500 •Since 1986 the US Equity Market recorded monthly declines of more than 5% 27 times versus just 6 in the case of the US High Yield Market. •Since 1995 the European Equity Market recorded monthly declines of more than 5% 33 times versus just 9 in the case of the European High Yield Market. European High Yield - 2012 - Monthly Returns -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 European Equities - Monthly Returns -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1995 - 2012
  • 5. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 5 High Yield Bonds Have Built-In Recovery Potential Bonds are issued at face value (par). In down markets, they may trade below par. As their maturity nears bonds trend back toward par and as markets recover bonds trend back toward par. High Yield bonds may experience deeper declines, but High Yield Bonds compensate with higher long term returns. Bonds reward patient investors. Source: Credit Suisse, Symfonie Capital Bond Prices as % of Par 50% 60% 70% 80% 90% 100% 110% 120% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2000 - 2012 A Rated Bonds High Yield Bonds
  • 6. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 6 In Recessions Stock Markets Get Hit Harder than Bond Markets • From August 2000 to February 2003 the US Equity Market declined by 44.5% and the European Equity Market declined by 58.3%. In contrast, the US High Yield Market generated a 6.9% total return while the European High Yield Market was down 13%. • Since 2008 High Yield has consistently provided higher annual returns than equities. • High Yield Bonds have a built in-advantage because they earn interest. Over the medium term interest payments help provide a more stable return. In contrast, equity markets are prone to sharp and long lasting down cycles.Source: Credit Suisse, Bloomberg, Symfonie Capital, S&P 500. DowJones Stoxx 50 Rolling 12 Month Returns - High Yield vs. Equities -60% -40% -20% 0% 20% 40% 60% 80% 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Return High Yield Equities Rolling 12 Month Returns - Euro High Yield vs. Equities -50% -30% -10% 10% 30% 50% 70% 90% 1996 1998 2000 2002 2004 2006 2008 2010 2012 Return High Yield Equities
  • 7. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 7 In Recessions Stock Markets Get Hit Harder than Bond Markets • Despite the global economic downturn since 2008 and the European sovereign debt crisis High Yield bonds have provided strong returns. • Equities have yet to recover from the peak prior to the collapse of Lehman. High Yield bonds, in contrast, not only recovered, but have also continued to generate superior returns. • High Yield bonds have two advantages over equities. First, performing High Yield bonds pay interest in good times and bad times. Second, they have a stated value with a stated maturity date.Source: Credit Suisse, Bloomberg, Symfonie Capital, S&P 500. DowJones Stoxx 50 European High Yield vs. Equities 0 100 200 300 400 500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1995 - 2012 Index1995=100 High Yield Bonds Equities US High Yield vs. Equities 0 200 400 600 800 1000 1200 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1986 - 2012 Index1986=100 High Yield Bonds Equities
  • 8. Private and conditional. Unauthorised distribution strictly prohibited. ©2012 Symfonie Capital LTD 8 Disclaimer • This document has been prepared by Symfonie Capital Investment, LLC (“Symfonie Capital”) for persons reasonably believed by Symfonie Capital to be persons of the categories to whom Symfonie Capital are permitted to communicate financial promotions as defined under the Financial Services and Markets Act 2000. This document does not constitute or form part of any offer or invitation to sell, or the solicitation of an offer to subscribe or purchase any investment. Symfonie Capital believes that the information it provides is accurate as at the date of publication, but no warranty of its accuracy or completeness is given and no liability in respect of errors or omissions is accepted by Symfonie Capital or any partner or employee of Symfonie Capital. Past performance is not necessarily a guide to future performance. • This presentation is for illustration and discussion purposes only and is not intended to be, neither should it be construed or used as, financial, legal, tax or investment advice nor an offer to sell, nor a solicitation of any offer to buy, an interest in any of the funds managed by Symfonie Capital (the “Funds”). None of the Funds have shares registered under the U.S. Securities Act of 1933, as amended. None of the Funds will be registered under the U.S. Investment Company Act of 1940, as amended. Any offer or solicitation of an investment in any of the Funds may be made only by delivery of a respective fund’s Confidential Offering Memorandum to qualified prospective investors. • This presentation is as of the date indicated, is not complete, and does not contain certain material information about the Funds, including important disclosures and risk factors associated with an investment in any of the Funds. • Any indications of interest from prospective investors in response to this material involves no obligation or commitment of any kind. Subscriptions can be made only on the basis of a Confidential Offering Memorandum to qualified investors. The investment objectives and methods summarized in this document represent our current focus and intentions. • There is no assurance that Symfonie Capital will achieve its objectives or that its investment process or risk management will be successful. Investors may lose money. No representation is made that any of the Funds will or are likely to achieve their respective objectives or that any investor will or is likely to achieve results comparable to any that may be shown or will make any profit at all or will be able to avoid incurring substantial losses. Past performance is no guarantee of future results. • This presentation does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. Before making any investment, you should thoroughly review the particular fund’s Confidential Offering Memorandum with your financial and tax advisor to determine whether an investment in the fund is suitable for you in light of your financial situation. • This presentation is subject to revision and updating. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. This presentation is confidential, is intended only for the person to whom it has been delivered and under no circumstance may a copy be shown, copied, transmitted, or otherwise given to any person other than the authorized recipient. Symfonie Capital is solely responsible for the content herein.

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