e-fundresearch.com: From a V-shaped recovery in Q1 to a summer full of global recessionary fears: What are your personal lessons learned from year-to-date market developments?
Gary Pokrzywinski: Our strategy does not try and time the business cycle. The core of our High Yield strategy invests in the appropriate industries for the asset class and buys “good” businesses within those industries. Additionally, we look for out-of-favor industries where we can see a catalyst for change and take risk out by purchasing the best businesses in those industries.
e-fundresearch.com: How did your strategy manage to perform in this challenging market environment and which particular investment themes have delivered the strongest (worst) performance contribution on a year-to-date perspective?
Gary Pokrzywinski: Through mid-September, positive performance has come from our out-of-favor shipping holdings while negative performance has come from our core “good” businesses that have not kept pace in a strong up market. The portfolio has also had a few specific positive and negative performing companies.
e-fundresearch.com: How optimistic is your view into the future and what obstacles and challenges should investors be prepared to overcome in the remainder of 2019 and early 2020? To what extent does your current portfolio positioning take those expectations into account?
Gary Pokrzywinski: Although our strategy does not try and time the business cycle, we believe slow growth and low inflation will be the normal for years to come. This is mainly due to the changing demographic for most of the world producing economies. Low growth, low inflation and low interest rates are supportive of current or higher asset prices.
e-fundresearch.com: Why should investors consider an (increase in) allocation to your asset class and in particular your strategy in the current environment?
Gary Pokrzywinski: The High Yield asset class provides income above inflation and underappreciated principal protection. On a structural basis the High Yield asset class should comprise 6% of a balanced portfolio given its income and diversification characteristics. Our strategy is unique and has historically produced returns above the High Yield market.
