Q4 High Yield Investor Survey

The Results Are In!

Thanks to Everyone who took part and thanks to Mahesh and Heema for their analysis.

There is a Webinar at 9 a.m. on Thursday the 19th of October where Mahesh and I will discuss the results and take Q&A.

Sign up here

Main Take Aways

Here is a summary of the main takeaways and what I found most interesting:

1. More investors expect a negative return for the quarter ahead Q4 vs. Q3
2. European High Yield is viewed as net cheap, but not as cheap as in Q3
3. Cash balances have only increased with an implied cash balance of 7.1%
4. Relative value
   • BB’s remain the favoured rating
   • US High Yield is expected to beat European High Yield
   • European investment grade is expected to do better than European High Yield
5. Positioning – stay defensive o/w Banks and Communications u/w Cyclicals

Overall the Q4 survey seems to reflect the negative sentiment that has only increased since the Q3 survey in June/July.

European High Yield Index spreads have widened somewhat over the survey period of Sep-12th to Oct-7th ranging from Z+539 to Z+643, starting at Z+542 and ending at Z+605.

Cash spreads reached their year-to-date wides, Z+670, around the time of the Q3 survey, and so it is understandable that European High Yield is viewed as less cheap now.

With expectations that it will get cheaper in Q4, assuming negative returns, new wides in spreads appear baked in.

USD dominance and the US’ stronger economy likely explain the expectations around US High Yield outperforming European High Yield as fundamentals come to the fore. One of the questions I have about this is how much expected rate hikes in either region are baked into these expectations.

Sector-wise the playbook remains defensive and it’s hard to argue against this as we head into Q3 earnings. I would hope we get to discuss some sector-level RV in the Webinar.

The survey results can be downloaded here