The PIA High Yield strategy seeks to provide above average income and is benchmarked to the Bloomberg Barclays High Yield Index. The PIA High Yield investment strategy focuses on below investment grade corporate securities with an emphasis on smaller issues (below $500mm). We believe this segment of the market provides us with above average income and provides repeatable opportunities to add alpha in the high yield asset class given the information asymmetry in these smaller names.
We believe the high yield market has historically offered sufficient income to over-compensate for default risk as well as offer the potential to produce capital gains when issuers have improved their credit quality. We know that defaults have been largely correlated by industry, which is why we defensively seek to underweight those industries where we can identify negative secular trends. We believe that “value” driven company-specific analysis can capture excess returns from companies that demonstrate they can generate free cash flow throughout an economic cycle. These companies generally incur lower-than-index default losses, while earning an attractive yield.
The PIA High Yield team has extensive experience in the high yield and bank loan space and has employed the same disciplined and fundamental approach throughout their careers to evaluate opportunities in leveraged finance. PIA believes we can add value in the high yield space from our top-down decision-making, because we are willing to completely avoid industries that we believe do not warrant leveraged finance over the current business cycle. Additionally, we have the conviction to take added credit risk within industries that we favor.
Once we find an industry whose economics we believe to be resilient enough to tolerate high financial leverage, our analysis shifts to a very granular “bottom-up” approach. We believe this is particularly important with the mid-cap and small-cap companies, which we tend to overweight. Such companies, though smaller, can still dominate small niches. In fact, we have invested in some relatively small but oligopolistic industries through several cycles of leveraging and deleveraging. We believe that relative size within these industries is much more important than absolute size in determining the staying power of a company and smaller companies, being less followed and having fewer comparable credits, give our industry-specialization model greater opportunity to develop comparative advantages in both information and analytical judgment.
For a sample High Yield RFI with additional information on our approach, please CONTACT US.