High Yield

Fixed Income

Investment Strategy

Denver Investments’ High Yield strategy is based on the belief that consistently 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.

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

Portfolio Construction Guidelines:

  • Approximately 60-75 securities
  • Duration: +/- .5 years of benchmark
  • No limit on non-investment grade securities
  • Typical initial position size of 1% and maximum position size of less than 5% (non-Treasury/Agency)
  • Diversified by sector, based on relative value assessment
Benchmark:

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

Investment Minimum:

$25,000,000

See composite descriptions and index descriptions. The guidelines listed are representative of the product but are not considered restrictions. Specific client guidelines may differ.

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, Mortgage-Backed Securities 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

Performance (%)

  Monthly Returns (%)
Periods Ended: 7/31/2017
Annualized Returns (%)
Periods Ended: 6/30/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
High Yield (gross) 0.72 1.79 5.33 9.76 6.04 6.81 5.43
High Yield (net) 0.68 1.68 5.06 9.27 5.56 6.33 4.94
Bloomberg Barclays U.S. Corp High Yield Ba Index 1.01 2.33 5.85 9.83 5.21 6.80 8.20
High Yield
Monthly Returns(%) as of 7/31/2017 Gross Net
1 Month 0.72 0.68
3 Months 1.79 1.68
YTD 5.33 5.06
Annualized Returns(%) as of 7/31/2017 Gross Net
1 Year 8.53 8.05
3 Years 6.53 6.05
5 Years 6.56 6.09
10 Years 5.86 5.01
Bloomberg Barclays U.S. Corp High Yield Ba Index
Monthly Returns(%) as of7/31/2017 Gross Net
1 Month 1.01 -
3 Months 2.33 -
YTD 5.85 -
Annualized Returns(%) as of 7/31/2017 Gross Net
1 Year 8.25 -
3 Years 6.02 -
5 Years 6.58 -
10 Years 8.61

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
High Yield (Gross) 13.64 -0.69 5.89 5.2 11.41 9.04 13.66 41.25 -29.38 -2.57
High Yield (Net) 13.13 -1.13 5.42 4.73 10.94 8.57 13.2 40.66 -29.72 -3.38
Bloomberg Barclays U.S. Corp High Yield Ba Index 12.78 -1 5.37 5.05 14.59 6.86 14.55 46.08 -17.53 1.74
High Yield
Year Gross Net
2016 13.64 13.13
2015 -0.69 -1.13
2014 5.89 5.42
2013 5.2 4.73
2012 11.41 10.94
2011 9.04 8.57
2010 13.66 13.2
2009 41.25 40.66
2008 -29.38 -29.72
2007 -2.57 -3.38
Bloomberg Barclays U.S. Corp High Yield Ba Index
Year Gross Net
2016 12.78 -
2015 -1 -
2014 5.37 -
2013 5.05 -
2012 14.59 -
2011 6.86 -
2010 14.55 -
2009 46.08 -
2008 -17.53 -
2007 1.74 -

Data is based on the firm’s composite for this strategy. Past performance does not guarantee future results and future performance may be lower or higher than the performance presented, including the possibility of loss of principal. Composite returns for one year or greater are annualized.

Returns are computed and stated in U.S. dollars. Performance is calculated net of withholding taxes on foreign dividends and interest, if any, and reflect the reinvestment of dividends and other earnings.

Gross of fee returns are calculated gross of management and custodial fees and net of transaction costs. Net of fee returns are calculated net of management fees and transaction costs and gross of custodian fees. As of 1/1/15, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a monthly basis. From 1/1/08 to 12/31/14, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a quarterly basis. Prior to this date, net of fees returns were calculated using actual annual client fees, pro-rated on a quarterly basis.

The Bloomberg Barclays U.S. Corporate High Yield Ba Bond Index benchmark is an unmanaged index that measures the performance of intermediate (1 to 10 year) U.S. high yield issues. It includes fixed-rate, noninvestment grade debt issues rated Ba1 or lower by Moody’s, rated BB+ or lower by S&P, rated below investment grade by Fitch Investor’s Service or if unrated previously, held a high yield rating or have been associated with a high yield issuer, and must trade accordingly. Bloomberg Barclays is the source and owner of the Bloomberg Barclays Index data. See Terms of Use for additional disclosure.

Index returns are provided to represent the investment environment existing during the time periods shown. For comparison purposes, the index is fully invested, which includes the reinvestment of dividends and capital gains. The returns for the index do not include any transaction costs, management fees or other costs. Composition of each individual portfolio may differ from securities in the corresponding benchmark index. The index is used as a performance benchmark only, as Denver Investments does not attempt to replicate an index. See composite descriptions.

Denver Investment Advisors LLC (dba Denver Investments) claims compliance with the Global Investment Performance Standards (GIPS®).

Denver Investments is an independent investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Denver Investments provides fundamental investment management services to various institutional and private investors and mutual funds.

See performance disclosure for a presentation that complies with the requirements of the GIPS standards. Please contact us to request a complete list and description of all firm composites.

Manager Commentary as of 6/30/2017

 

Market Overview

While the second quarter brought increased investor scrutiny and questions about whether economic expectations were too high, equities continued to ratchet even higher. The stock market, as measured by the Russell 3000® Index, was up 3.02% for the quarter. The Federal Reserve increased the Fed Funds rate by another 0.25% in June, as was widely anticipated. This rate hike was the fourth since December 2015. The interest rate market was seemingly less bullish than the Federal Reserve and equity investors. This was evidenced by the yield curve continuing to flatten as short-term rates (i.e. the Fed Funds rate) moved higher and long-term rates moved lower. For example, the 10-year U.S. Treasury was down from 2.39% on March 31, 2017 to 2.30% on June 30, 2017. Oil prices, which continue to be a barometer of the high-yield market, fell another 9.01% in the quarter. The trailing twelve-month high-yield default rate continued to move lower from 5.67% at March 31, 2017, to 4.43% as of June 30, 2017, indicative of improving issuer fundamentals and a supportive market for new high-yield issues. Against this backdrop, high-yield bonds posted a positive quarter, but lagged the investment-grade corporate market. Within high-yield, the energy sector was where the most negative pressure was felt during the quarter. Unlike last quarter, quality outperformed with the Barclays U.S. Corporate High Yield Ba Index up 2.68%, while the riskiest part of the market, the Barclays U.S. Corporate High Yield Caa Index, closed up 1.85%.

Portfolio Commentary

The Denver Investments’ High Yield portfolio’s return for the quarter lagged the 2.68% return recorded by its benchmark, the Bloomberg Barclays U.S. Corporate High Yield Ba Index. The portfolio benefited from positive actions by the rating agencies with several securities receiving upgrades from high-yield credit ratings to investment-grade credit ratings in the quarter. These benefits were more than offset by the portfolio’s shorter duration and energy positions, which ultimately led to its underperformance.

Outlook and Positioning

High-yield credit spreads (the additional yield over Treasuries offered by high-yield bonds) continued to tighten during the quarter and again approached the post-2008 lows established in mid-2014. Issuer fundamentals showed improvement when first quarter results were finalized, but overall leverage levels in the high-yield market currently remain elevated. In our view, we’ve passed the peak in balance sheet improvement in high-yield securities, except for a few commodity sectors and one-off situations. Increased political uncertainty has had a mild positive impact on bond markets as corporate America has started to take a “wait and see” approach while awaiting details regarding tax reform, regulatory reform, etc. 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 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 shareholders 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. To obtain current performance as of the most recent month-end and for important performance disclosures, please view the fact sheet.

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.

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Fixed Income
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