With Treasury yields low and the stock market volatile, high-yield bonds have made a comeback.
"It really comes down to the alternative — are you going to put your money in Treasurys?" asked fund manager Raymond Kennedy of Hotchkis and Wiley High Yield Fund.
"That’s not really a good alternative. Otherwise, you‘ll have to stretch for going overseas, which is not a good decision at this point, or it’s equities. Really, high yield becomes the default safe-asset class."
Kennedy told CNBC Tuesday there are a lot of "high quality" bonds with B or lower ratings to be had in what used to be known as "junk," but the best portfolio balances safety and payoff. Kennedy's fund buys high-yield bonds in the media, technology, automotive and health-care sectors.
"The best thing about high yield is, fundamentally, our companies are in good shape," he said, with "a lot of cash, debt coming down as a percentage of equity as well as multiple of earnings. From that standpoint we, like most funds, are focused on improving credits. There’s a lot of gains you can get from that approach."
The goal is to come up with a portfolio that mixes bonds that generate income with bonds that take some risk by trading below par. "It's all about balance," he said.
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Disclosure information was not available for Raymond Kennedy or his company.