Consistent with other risk assets, the US high yield market* has seen significant volatility the past few weeks, with month-to-date performance of (-3.1%) as of December 15. The dramatic sell off in the high yield market has been driven largely by the collapse in commodity prices. Commodity related sectors, which represent 17% of the high yield market, have been the main driver for high-yield’s setback since September. Not surprisingly, as of December 15, the worst performing sectors month-to-date have been Energy (-9.5%) and Metals/Mining (-6.4%)*. This in turn has driven a stretch of sizeable retail fund outflows. Outflows reported over the week ending Dec 9th were -$3.5bn (1.8% AUM), the third largest outflow on record. Fund flows have helped contribute to significant performance pressure beyond commodity related sectors, including Media (-2.1%), Technology (-2.6%), and Telecom (-2.0%). Technicals have overwhelmed fundamentals in the broader high yield market.
The high yield market certainly has its challenges. However, recent negative press centered on certain “high yield” funds has created significant confusion. The articles have been focused on funds that have been invested in the least liquid and lowest parts of capital structures, and with unusually high percentages of non-rated and lower rates securities. These funds would be more accurately described as distressed funds and are not representative of a typical high yield mutual fund.
*BofA Merrill Lynch US High Yield Index