Weekly MainStay High Yield Review

Tuesday, April 15, 2014

Thoughts of the week from J. Matthew Philo, CFA

Head of the High Yield Team and Portfolio Manager

  • The high-yield market gained. The Credit Suisse High Yield Index returned 0.25% for the week ended April 10, 2014:
    • Yield to Worst is at 5.36%.
      (YTW is the yield to the least favorable call dates.)
    • Spread to Worst was 415 basis points above U.S. Treasurys.
  • Equities sold off on little news, but valuations have generally been elevated. High yield still gained as U.S. Treasurys rallied and yields declined.
  • High-quality high yield remains the best risk-adjusted opportunity in fixed income. We believe quality high-yield companies, in general, have unusually strong liquidity, conservative debt loads, and maturity profiles. In our opinion, bank debt is a significantly inferior alternative to short-duration high yield.
  • If high yield were to experience downside price volatility, we would view it as an opportunity to increase the yield of the Fund at more attractive prices. We believe the default risk of the Fund is unusually low, the income stream should remain largely intact, and that the opportunity to buy higher-quality higher-yield bonds remains reasonably valued.

 

All mutual funds are subject to market risk and will fluctuate in value.  

The Credit Suisse High Yield Index is a market-weighted index that includes publicly traded bonds rated below BBB by S&P and Baa by Moody's. Index results assume the reinvestment of all capital gain and dividend distributions. An investment cannot be made directly into an index. 

Yield to Worst is the lower of the yield to maturity or yield to call. 

Spread to Worst is the difference in overall returns between two different classes of securities, or returns from the same class, but different representative securities. The Spread to Worst measures the difference from the worst performing security to the best, and can be seen as a measure of dispersion of returns within a given market or between markets. The Spread to Worst can vary significantly depending on different market and economic variables.

A basis point is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes, and the yield of a fixed-income security. 

Treasury securities, when held to maturity, are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest.

Past performance is no guarantee of future results. It is not possible to invest in an index.

High-yield securities (commonly referred to as “junk bonds”) are generally considered speculative because they present a greater risk of loss than higher-quality debt securities and may be subject to greater price volatility. Foreign securities can be subject to greater risks than U.S. investments, including currency fluctuations, less liquid trading markets, greater price volatility, political and economic instability, less publicly available information, and changes in tax or currency laws or monetary policy. These risks are likely to be greater for emerging markets than in developed markets. Floating rate loans are generally considered to have speculative characteristics that involve default risk of principal and interest, collateral impairment, borrower industry concentration, and limited liquidity. Issuers of convertible securities may not be as financially strong as those issuing securities with higher credit ratings and are more vulnerable to changes in the economy. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner.

The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only, and is not intended to constitute the giving of advice or the making of a recommendation. The investments or strategies presented are not appropriate for every investor and do not take into account the investment objectives or financial needs of particular investors. An investor should review with its financial advisors the terms and conditions and risks involved with specific products or services and consider this information in the context of its personal risk tolerance and investment goals.

For more information about MainStay Funds®, call 800-MAINSTAY (624-6782) for a prospectus or summary prospectus. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus or summary prospectus contains this and other information about the investment company. Please read the prospectus or summary prospectus carefully before investing.

MacKay Shields LLC is an affiliate of New York Life Investment Management LLC. MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed by NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, New Jersey 07054.