High Yield SMA

Fixed Income

Investment Strategy

Denver Investments’ High Yield SMA strategy is based on the belief that consistent, strong risk-adjusted returns are best achieved through an emphasis on income rather than short-term market timing. Using a relative value strategy, the team seeks to deliver alpha primarily through security and sector selection and, secondarily, through portfolio level decisions. Using a collaborative approach grounded in proprietary research, the team constructs a diversified portfolio while adhering to its risk control measures.

This strategy is also available as an institutional high yield strategy and a high yield mutual fund offering.

Portfolio Management

Our investment process demands rigorous fundamental credit analysis, the application of which within the high yield market logically results in a large allocation to higher-rated issuers that we believe provide advantageous return potential with less expected volatility. – Troy A. Johnson, CFA

Troy A. Johnson, CFA

Troy A. Johnson, CFA

Partner, Portfolio Manager, Analyst

Gregory M. Shea, CFA

Gregory M. Shea, CFA

Partner, Portfolio Manager, Credit Research Analyst

 
Benchmark:

Bloomberg Barclays U.S. Corporate High Yield Ba Bond Index

Investment Minimum:

$500,000

Investment Team

Troy A. Johnson, CFA
Troy A. Johnson, CFA

Partner, Portfolio Manager, Analyst

2007 to Present: Denver Investments
2002 to 2007: Quixote Capital Management, Portfolio Manager and Analyst
1993 to 2002: Invesco Funds Group, Inc., Senior Fixed Income Analyst
Education:

BS – Montana State University; MS – University of Wisconsin
Member of CFA Institute and CFA Society of Colorado

Gregory M. Shea, CFA
Gregory M. Shea, CFA

Partner, Portfolio Manager, Credit Research Analyst

2008 to Present: Denver Investments
2004 to 2008: Lehman Brothers Asset Management, High Yield Credit Analyst
2003 to 2004: Banc of America Securities, Investment Banking Analyst
2001 to 2003: Bank of America, Bank Credit Analyst
Education:

BS & MSBA – Washington University
Member of CFA Institute and CFA Society Colorado

Nicholas J. Foley
Nicholas J. Foley

Vice President, Portfolio Manager, Municipal Credit Analyst/Trader

2012 to Present: Denver Investments
2010 to 2011: Bank of the West/BNP Paribas Group, Associate Portfolio Manager and Lead Fixed Income Trader
2009 to 2010: Janus Capital Group, Financial Analyst
2004 to 2008: Washington Mutual Bank, Senior Analyst
Education:

BA - Gonzaga University

Kenneth A. Harris, CFA
Kenneth A. Harris, CFA

Partner, Director of Fixed Income Portfolio Management, Portfolio Manager

2000 to Present: Denver Investments
1985 to 1999: Blue Cross and Blue Shield of Colorado, Treasurer
Education:

BBA – University of Arizona; MBA – University of Colorado at Denver
Member of CFA Institute and CFA Society Colorado

Darren G. Hewitson, CFA
Darren G. Hewitson, CFA

Partner, Portfolio Manager

2008 to Present: Denver Investments
2008: 180 Connect, Accountant
2007: Munro & Noble Solicitors and Estate Agents, Accountant
2004 to 2005: Clydesdale Bank PLC., Bank Teller/Customer Services Representative
Education:

BAcc – University of Glasgow, Scotland
Member of CFA Institute and CFA Society Colorado

Steven G. Kindred, CFA, CPA
Steven G. Kindred, CFA, CPA

Vice President, Credit Research Analyst

2009 to Present: Denver Investments
2008 to 2009: Janus Capital Group, Equity Research Analyst
2007: Wasatch Advisors, Equity Analyst Intern
2003 to 2006: Deloitte & Touche LLP, Senior Auditor
Education:

BS and MAcc – Utah State University; MBA - Dartmouth College
Member of CFA Institute and CFA Society Colorado

William Oh, CFA, FRM
William Oh, CFA, FRM

Vice President, Securitized Debt Analyst/Trader

2012 to Present: Denver Investments
2010 to 2011: Nationwide Insurance, Finance Leadership Rotation Program
2009 to 2010: AEGON USA Investment Management, Corporate Credit Strategy Intern
2004 to 2008: One West Bank (Formerly Indymac Bank), Assistant Vice President, Buy-Side MBS & Whole Loan Trader
2002 to 2004: Bear Stearns Residential Mortgage, Business Development Analyst
2001 to 2002: Wells Fargo Bank, Premier Banking Officer and Trust Account Manager
Education:

BA – Claremont McKenna College; MBA – The University of Chicago
Member of CFA Institute and CFA Society Colorado

Daniel T. Schniedwind, CFA
Daniel T. Schniedwind, CFA

Vice President, Credit Research Analyst

2014 to Present: Denver Investments
2011 to 2014: AMI Asset Management, Credit Analyst
2010 to 2011: Mars Hill Partners, Analyst
2009: Oppenheimer & Co., Sales and Trading Intern
Education:

BA – Whittier College; MS – Indiana University
Member of CFA Institute and CFA Society Colorado

Greg G. Seals, CFA
Greg G. Seals, CFA

Vice President, Portfolio Manager

2017 to Present: Denver Investments
2013 to 2017: Braddock Financial Corporation, Portfolio Specialist
2012: University of Colorado Burridge Center for Securities Analysis, Director
2008 to 2010: CFA Institute, Director of Fixed Income and Behavioral Finance
1994 to 2008: Smith Breeden Associates, Senior Portfolio Manager
Education:

BS and MBA – California State University Chico
Member of CFA Institute and CFA Society Colorado

Daofu (Nick) Yu, CFA
Daofu (Nick) Yu, CFA

Vice President, Credit Research Analyst

2016 to Present: Denver Investments
2013 to 2016: Great West Financial, Credit Analyst/Portfolio Manager
2012 to 2013: Western Union, Foreign Exchange Trader
2011 to 2012: D.A. Davidson and Company, Research Associate
2006 to 2009: Oppenheimer Funds, Business Analyst-Operations
Education:

BS – University of Colorado; MS and MBA - University of Colorado at Denver
Member of CFA Institute and CFA Society Colorado

Drew D. Conrad, CFA
Drew D. Conrad, CFA

Vice President, Fixed Income Trader

2010 to Present: Denver Investments
2006 to 2008: SCM Advisors, High Yield and Leveraged Loan Trader and Analyst
2001 to 2006: AIG Investment Management, Fixed Income Analyst and High Yield Trader
Education:

BA – Rice University
Member of CFA Institute and CFA Society Colorado

Nicole J. Foote
Nicole J. Foote

Fixed Income Portfolio Administrator

2015 to Present: Denver Investments
2009 to 2014: Shenkman Capital Management, Client Service Associate, Portfolio Administrator
2008 to 2009: GE Asset Management, Trade Operations Specialist
2008: Evaluation Associates, Performance Analyst
2004 to 2008: Clayton Holdings, Senior Operations Analyst
Education:

BS – Colorado State University; MBA – University of Connecticut

Manager Commentary as of 9/30/2017

 

Market Overview

The high-yield market’s ability to shake off negative headlines and move higher continued in the third quarter. The Bloomberg Barclays U.S. Corporate High Yield Index posted another strong quarter, returning 1.83%. However, its returns by month did not follow a smooth trajectory as it posted solidly positive results in July and September, but took a breather in August. The new issue market remained generally accommodative and year-to-date issuance was up 15% versus the same period last year. The openness of the capital markets and stable fundamentals helped drive the trailing twelve-month high-yield issuer default rate down further in the quarter from 4.43% to 4.00%. Interestingly, when looking at how the different high-yield credit quality indexes performed in the quarter, the difference between the best-performing credit cohort, the Bloomberg Barclay’s U.S. Corporate High Yield Caa Index, and the worst-performing credit cohort, the Bloomberg Barclay’s U.S. Corporate High Yield B Index, was only 0.59%. This was the lowest differential since the second quarter of 2014 when the high-yield credit spreads reached their post-2008 low. The sector that underperformed most notably this quarter was telecommunications, while the top performer was energy, which was buoyed by the double-digit increase in oil prices during the quarter. Two individual credit stories worth highlighting in the quarter, although the portfolio was not invested in them, were Tesla and Toys ‘R’ Us. Tesla raised $1.8 billion in the quarter in its inaugural high-yield bond offering. The capital raised will help in funding its continued disruption of the conventional gasoline powered automobile market and, potentially, the power markets in the future. This is noteworthy as Tesla remains in a heavy investment phase and does not currently generate positive free cash flow, which is not the typical profile for a new debt issuer. Toys ‘R’ Us abruptly filed for bankruptcy in September 2017. To us, this is cautious reminder that it doesn’t take much volatility to push some companies over the edge. To better illustrate this, Toys ‘R’ Us had a 7.375% coupon bond that was due October 15, 2018, or about 13 months from the beginning of September. It started the month priced at 97.25 (a slight discount to par) and ended the month priced at 32.00, or down a shocking 67%. In our view, robust credit analysis remains critical in the high-yield market.

Outlook and Positioning

As investors required less additional yield over Treasuries for credit risk, high-yield credit spreads continued to march tighter in the quarter and are about 0.25% from the post-2008 lows established in mid-2014. Our market view has not meaningfully changed since last quarter. We believe the key drivers of market valuations from here will likely be (1) the speed with which the Federal Reserve normalizes policy, (2) global investor appetite for fixed income assets, (3) results out of Washington D.C., and (4) the pace at which corporate America re-leverages balance sheets. We still generally expect moderate outcomes on each of these fronts, but are positioned appropriately to go on the offensive if dislocations occur and the situation warrants.

We position the portfolio with a longer-term investment orientation and an emphasis on higher-quality high-yield bonds, the goal of which is reducing the portfolio’s volatility while providing solid risk-adjusted returns over time. Our process entails intensive credit analysis by which we evaluate yield versus risk through business cycles, and it follows that a larger weighting of higher-rated, high-yield issues is a logical result. Most importantly, we believe this strategy is suitable over the long term for investors who want comparative yield from a high-yield portfolio, but who are also more sensitive to volatility and more focused on capital preservation.

 

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will vary, and initial investments may be worth more or less than their original investment.

The Manager Commentaries contain certain forward-looking statements about the factors that may affect future performance. These statements are based on portfolio management’s predictions and expectations concerning certain future events and their expected impact on the strategy, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the strategy. Portfolio management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed.

All indices are unmanaged and investors cannot invest directly in an index. View index descriptions.

To open a Denver Investments High Yield account, please review the following:

  1. Denver Investments Welcome Packet (account opening instructions, necessary documentation, contact information)
  2. Form ADV Part 2A (Brochure)
  3. Form ADV Part 2B (Brochure Supplement)

If you have any questions please call 800.734.9378 or email us.

SMA Services Group

Steve Wine
Paul Laffrenzen

For more information on our SMA strategies please call 800.734.9378 or email us your request below.

Email Request

High Quality Junk Bonds - An Oxymoron or Opportunity?

Portfolio Manager Troy Johnson discusses the benefits of investing in higher-quality high yield bonds.

Read Article

Changes at the Fed: A Focus on Monetary Policy

Denver Investments’ Fixed Income team discusses implications of the Fed’s monetary policy and what changes we should expect from the recently announced Fed Chair.

Read Article

November 2017
Fixed Income
Market Update

Read the latest insights on the fixed income market.

Download

In The News

Denver Investments’ strengthens Fixed Income with new hires.

SMA Services Group

Steve Wine  |  Paul Laffrenzen
Phone: 800.734.9378

 

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