The PIA High Yield strategy seeks to provide above average income and is benchmarked to the Bloomberg 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.
PIA High Yield employs a disciplined, fundamental approach to evaluate high yield opportunities. PIA believes we can add value from our top-down decision-making as a result of our proprietary risk-adjusted quantitative/qualitative analysis and our willingness to completely avoid industries we believe do not warrant leveraged finance over the current business cycle. Additionally, we employ a high conviction approach toward credit selection within industries we favor.
Within those industries whose economics we believe to be resilient enough to support high financial leverage, our credit analysis shifts to a very granular “bottom-up” approach. We believe this is particularly important with mid-cap and small-cap companies, which tend to offer the most attractive credit metrics and return potential. We favor smaller, oligopolistic companies that can dominate small, domestic niche industries. We believe relative size within a respective industry is more important than absolute size when determining a company’s pricing power. Additionally, smaller companies receive less Wall Street research and often have fewer comparable issuers, which provides greater opportunity for our industry-specialization model to develop comparative advantages in both information and analytical judgment.
We believe our Alpha Thesis and Investment Approach differentiate us from our competitors:
- We are willing to significantly underweight or zero-weight unattractive industries, which has reduced default risk.
- We focus on small/mid-size issuers where we can maximize our research value added.
- We invest in businesses we believe can survive a complete business cycle. Our knowledge and conviction adds value in difficult economies.
For a sample High Yield RFI with additional information on our approach, please CONTACT US.