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Peritus Asset Management CEO Ron Heller on the potential high-yield bond bubble and its impact on investors.
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But the Fed's easy money policy -- -- led to yield starved investors to turn to riskier assets like junk bonds driving up the price of those assets to record levels so.
Is -- -- high yield bond bubble let's bring in -- helpful folio manager they.
Parents as high yield fund the only actively managed ETF on the market -- thanks for joining us I was.
Investors scramble for yield any yield Ali and a junk bond -- -- certain percentage of the market is in a bubble.
If you look at the most liquid names.
At of one point four trillion dollar.
Corporate bond market.
About 3035%.
Of that is a bubble and that's all the stuff that the large index funds and large mutual funds own.
So he could say there's a lot of big asset managers out there thirsting for yield and you got companies basically.
Issuing a lot of crap -- That's that's exactly right all of the crap is getting refinanced because there's so much demand some market -- and in the ethics class.
Even a highly leveraged companies even the companies that the don't have good balance sheets in in cash flow statements are getting refinance and push now maturities.
So the doomsday comes at a later date.
So -- how can you -- you know obviously maximize your return but minimize your risk.
Well you have to you have to buy a twelve week so really in one point four trillion dollar high yield bond market.
You have about thirty -- 35% of market that is played in.
Buy it you know the big heat index funds and the big mutual -- -- that -- about 70% of the market does really untouched.
And we're still seeing above 8% distribution yields between nine and 10% overall all returns total returns and so.
There's still a lot to do out there and it's a big big market.
What you make a distinction between the passively managed index funds murals which is actively managed what's the main difference that.
Well they're restricted by their charter so they can't -- Any companies that have less than a billion dollars in in in in debt outstanding.
And the trust side has to be between 40600.
Depending on which index.
-- you're looking at we have no restrictions so we can buy anywhere with any rating from double B plus to triple C.
We go to where value is so we're looking for value.
For securities that are under undervalued and -- -- -- appreciation left them yet because when you look at investment grade corporate bonds you know sometimes these yields are often less than -- percent.
Yeah we've we've seen some deals come -- with 75 basis points over Libor plus which is just unheard of in.
You know with the ten year over 2% now you know a lot of those low.
Coupon.
Bonds and law generation portfolios are gonna take a hit and so.
Investment grade is not really place you wanna be right now and finally Ron you know you're concerned about the rally we've seen inequities in this so called rotation out of -- come into the market.
-- you know we start with fundamentals of our companies and we're not seeing any type -- top line growth.
And we're now seeing an even -- our growth so when I mean things are stable out there and for a -- investor that's fine with us but for equity guys.
-- you're doing is getting expansion on the multiples and that's that's not a good scenario that to be investing in.
Very good rob Callas CEO apparent as asset management Ron thank you so much appreciate it.
