The case for global short-dated high yield | Insight Investment

Focused on visible cashflows, aiming to avoid defaults

In an environment marked by elevated uncertainty, resilient income and disciplined risk management matter more than ever. Insight’s Global Short‑Dated High Yield strategy is built around one core belief: default risk is best managed by focusing on short maturities and visible cashflows.

By targeting bonds we expect to be repaid within two years, the strategy aims to deliver attractive levels of income while limiting exposure to duration risk and long‑term uncertainty.

Why short‑dated high yield?

High yield spread curves are often flat, meaning investors are rarely compensated for taking additional duration risk. Yet default risk rises steadily the further into the future one looks. We believe a short‑dated approach allows investors to be paid disproportionately for the credit risk they take, without relying on market timing or duration bets.

With yields elevated and curves flatter, we believe short‑dated high yield offers a potentially compelling risk‑adjusted opportunity.

A disciplined approach to credit selection

The strategy focuses on companies with predictable revenues and resilient cash generation – businesses where repayment visibility is high.

Key elements of the process include:

• Targeting bonds with a clear two‑year repayment path
• Avoiding highly cyclical, asset‑light and early‑stage businesses
• Generally excluding CCC‑rated issuers, where default risk is structurally higher
• Ongoing engagement with management to monitor execution against defined milestones
• If a repayment path deteriorates, positions are exited early, prioritising capital preservation

Enhancing returns through call structures

Most high yield bonds are callable, allowing issuers to redeem debt early at a premium. By focusing on bonds we expect to be called, the strategy seeks to capture call premiums, supporting returns while maintaining regular liquidity.

Historically, 35–50% of the portfolio redeems each year, creating a steady pipeline of cashflows to reinvest capital into new opportunities.

Why high yield risk is often misunderstood

The global high yield market has changed materially over time:

• Credit quality has improved, with BB‑rated issuers now representing the majority of the market
• Corporate margins remain historically strong
• Leverage has declined and interest coverage remains elevated
• Default rates remain low relative to long‑term averages

High yield returns have also been largely income‑driven, with coupons providing a more dependable source of return than equity dividends in stressed environments.

Performance matters, but so does downside control

Despite its short‑duration positioning, the strategy has historically delivered yields comparable to the broader high yield market, while exhibiting lower volatility and fewer defaults over time.

Our approach is designed to deliver income across market cycles, while focusing relentlessly on protecting client capital.