CNBC Stock Blog

Fund Manager: You Need Bond Income and Risk


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.

High Yield Sweet Spot

"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.