ATLANTA, Feb. 10, 2014 /PRNewswire/ -- In the quest for sustainable income sources that keep pace with inflation, investors may feel pressured when relying only on investment grade bonds. But according to a white paper recently issued by RidgeWorth Investments (RidgeWorth), for investors who can withstand short-term portfolio volatility, high yield bonds may offer three distinct benefits.
RidgeWorth's publication, "In Search of Yield: The Case for Actively Managed High Yield Bond Funds," suggests investors may benefit from an actively managed portfolio of high yield bonds. The paper explains the attractive characteristics of these securities, highlighting the key differences between investing through actively managed mutual funds and passive exchange traded funds (ETFs), a commonly used vehicle to invest in high yield bonds.
"An actively managed fund can benefit from a highly experienced manager's ability to deftly navigate shifting market conditions in an effort to increase potential return," said George Goudelias, managing director at Seix Investment Advisors, a boutique investment firm owned by RidgeWorth. "ETFs, on the other hand, are often designed to track the performance of an index. As such, little or no attention is given to managing credit risk or striving to take advantage of pricing inefficiencies," he added.
According to the paper, high yield bonds typically pay a higher coupon than Treasuries and high grade corporate bonds, offering a more attractive level of income. "High yield bonds may be more vulnerable to credit risk, but we believe some exposure to high yield investments may be beneficial to investors, particularly during this low yield environment – if you are investing with an experienced management team," said Ashi Parikh, CEO & CIO of RidgeWorth Investments.
High yield bonds tend to have less sensitivity to price declines than their higher quality counterparts during periods of rising interest rates, providing the potential for added security in a changing rate environment. "Of course, by definition, these bonds are riskier than their fixed income counterparts. Professional managers are continually evaluating the market and making portfolio adjustments to help investors minimize that downside risk," Parikh added.
High yield bonds share characteristics of both equities and bonds. Their prices tend to mimic the equity market yet they still offer the income potential of other fixed income investments and investors may also profit from attractive risk-adjusted returns during favorable equity market conditions. When combined with other income asset classes in a diversified portfolio, an allocation to high yield bonds may temper principal fluctuation and potentially enhance returns over the long term.
The paper concludes that against the current interest rate backdrop, high yield bonds may offer advantages to investors who have been unsatisfied with returns from traditional fixed income securities. In particular, actively managed high yield bond mutual funds may offer yield potential for individual investors, especially those nearing retirement.
To access this white paper, visit www.ridgeworth.com/high-yield. Additional research tools are also available at www.ridgeworth.com/news-insights/ridgeworth-research.
About RidgeWorth Investments
RidgeWorth Investments serves as a holding company that owns interests in six investment boutiques with $50.3 billion of assets under management as of December 31, 2013. RidgeWorth's investment boutiques manage a wide variety of investment disciplines across the fixed income, equity, and asset allocation asset classes. Our boutiques provide investment management services to a growing client base that includes endowments, foundations, corporations, healthcare organizations, municipalities, public funds, associations, insurance companies, labor unions and high net worth individuals. In addition, RidgeWorth serves as the investment adviser to the RidgeWorth Funds mutual fund family. RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC headquartered in Atlanta, GA. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the Adviser. For more information about RidgeWorth, visit www.ridgeworth.com.
Bonds offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. Generally, a fund's fixed income securities will decrease in value if interest rates rise and vice versa. U.S. Government guarantees apply only to the underlying securities of the fund's portfolio and not the fund's shares. Floating rate loans are typically senior and secured, in contrast to other below investment grade securities. However, there is no guarantee that the value of the collateral will not decline, causing a loan to be substantially unsecured. Loans generally are subject to restrictions on resale. Certain types of loans may limit the ability of the Fund to enforce its rights and may involve assuming additional credit risks.
Past performance is not indicative of future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.ridgeworth.com.
An investor should consider the funds' investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund's prospectus. To obtain a prospectus, please call 888-784-3863 or visit www.ridgeworth.com. Please read the prospectus carefully before investing.
©2014 Seix Investment Advisors LLC is a registered investment adviser with the SEC and member of the RidgeWorth Capital Management, Inc. network of investment firms.
©2014 RidgeWorth Investments. RidgeWorth Investments is the trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the adviser. Collective Strength Individual Insight is a federally registered service mark of RidgeWorth Investments.
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SOURCE RidgeWorth Investments