Why asset allocators are cutting their high-yield exposure


One of the curiosities of 2023 was that, while most of the asset classes that are expected to suffer when recession is anticipated behaved according to script and dropped in value, high-yield bonds proved resilient.

The IA Sterling High Yield Bond sector returned 11.1 per cent in the 2023 calendar year, comfortably outperforming the IA Global Government Bond sector in that time, as the table below shows.

High-yields bonds of course offered the benefits of an income level against the tide of inflation, but come with the extra credit risk, presenting investors with the dilemma that probably defined 2023: whether to be more worried about inflation, or economic growth.

Given the recession never really came and economic data since has been quite positive, intuitively, high yield bonds should be more interesting now than then.

But a glance at our proprietary Asset Allocator database reveals the wealth managers we monitor have actually reduced their exposure to high yield funds over the past year, from 2.2 per cent to 1.8 per cent.

In terms of government bond fund exposure, thats risen from 7.2 per cent to 8 per cent over the same period. 



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