“The Muzinich Long Short Credit Yield Fund is one of very few long/short high yield managers in UCITS format,” says Gadsby, who is head of fixed income fund selection at Credit Suisse’s private banking arm and a valued member of our editorial panel. “The manager [Jason Horowitz] is a long-based investor and can short up to 30% of its exposure.”
This flexibility, and the manager’s ability to use it to good purpose, is a major explanation for the fund significantly outperforming both the Barclays High Yield Bond Index and its peer group since a two-year high yield bull market abruptly ended in July last year (see chart below).
From beta to alpha
Gadsby has been devoting a great deal of his time to finding good long/short bond managers over the past year. “Beta exposure is unattractive across fixed income because of ultra-low yields. So good short managers are extremely important in the present market environment,” he says.
It is particularly important to have active managers in the high-yield bond space, he believes. “Until September 2014, energy issuers funded themselves similar to the overall market. However, things have changed since then,” he says. “With energy, the largest sector in high yield, in distress, you can no longer own just beta high yield. You need very active managers.”