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Higher Quality High Yield: Addition by Subtraction @Osterweis

WABACWABAC
in Fund Discussions
Here is your dinky linky.

Here is the TLDR:

In this paper, we explain that the transformation is primarily due to the exodus of weaker borrowers. Looking at several data sources, including agency ratings, spreads, and defaults, we show that since the GFC, higher quality sub-investment grade borrowers have favored the high yield market while the weakest borrowers have utilized the private credit market, which has been growing exponentially since 2009. The leveraged loan market tends to attract mid-quality borrowers.
Does that give you warm feelings about private credit yet?

M* has OSTIX at 17% cash currently. Their 3rd quarter report explains why: YADL.

Comments

  • Old_JoeOld_Joe
    WOW !!!   COUNT ME IN !!!

    Hey, @WABC- This is the chance of a lifetime!!! Could you possibly advance me 100k or so? I'll split the profits with you!
  • WABACWABAC
    Old_Joe said:

    WOW !!!   COUNT ME IN !!!

    Hey, @WABC- This is the chance of a lifetime!!! Could you possibly advance me 100k or so? I'll split the profits with you!

    Spent all my spare cash on lottery tickets last week. Sorry.

    I'll probably be buying this fund at some point. I like their reports.
  • JD_co
    The excess liquidity in the market is masking many of the risk factors covered in this piece. We do not know when, but we know there will be another disruption in the market that could open up attractive entry points for us to utilize our ample liquidity.
    Everybody seems to be anticipating a market disruption.
  • Sven
    OSTIX is one of the Great Owl fund for a good reason. Seldom this fund holds this high level of cash.
  • CrashCrash
    "...We believe the structure of the fixed income market has permanently changed and that it now has four discrete tiers instead of two. High yield bonds were previously the lowest quality option, behind investment grade bonds. Post-GFC, they have become the second highest quality option, followed by leveraged loans, and finally private credit, which now appears to contain the highest concentration of low quality (“junk”) debt..."
  • a2z

    my simplistic thinking is that the flood of current, and massive untapped, private credit has dragged down the actual quality of the entire group. relative ranking may be tough to chew.

    not sure the reward still exists, but ~2023 giroux pointed out huge bargains in var.rate bank loans that were forced into higher quality lending.
  • Sven
    Historically OSTIX does not performed like other high yield funds. Kaufman’s team tends to stay away from the junkier tiers of bonds, including private equity. They are patient investors and stay in cash when the opportunities do not meet their criteria.
  • AndyJ
    I recall when RSIVX/RSIIX launched, David S. said the closest strategy to what he had in mind was OSTIX.
  • JD_co
    edited September 10
    Interesting comp - they both returned about just over 5% annualized over the past 10 years, with SDs near 5. OSTIX had slightly lower SD. RSIIX had 79% positive return months vs. 70% for OSTIX.
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