Now’s a good time for advisors to put some junk into their clients’ portfolios, according to Margie Patel, manager of the Pioneer High Yield fund (TAHYX), because high-yield junk bonds are poised to outperform equities.
Patel, who joined Pioneer in 1999 after the Boston-based investment company acquired the high-yield fund that she’d been managing for Third Avenue Funds, is a value investor who searches for industries with good fundamentals, high barriers to entry, and ones that are growing–preferably faster than the economy. She then looks for companies in those industries that are leaders in their product niches.
Her fund’s philosophy differs from other high-yield funds in its industry approach because she doesn’t “benchmark any index or try to use the same industry weightings as an index of the high yield market.” Most other high-yield funds, she says, “are either de facto or closet indexers as an investment philosophy and as a way to attempt to reduce risk.”
In scanning for value, Patel says she also looks for opportunities in out-of-favor industries and companies, and will latch onto one if she sees that there are near-term catalysts to turn around company operations and to improve investor sentiment, such as changing supply/demand fundamentals, or new management.
Her approach seems to be paying off. In 1999 and 2000, the Pioneer High Yield Fund was the best performing high-yield fund by return, according to Morningstar, returning 27.1% in 1999 and 12.8% in 2000. And she hasn’t faltered lately, either. According to Principia, the fund is still in the top percentile of all high-yield bond funds for both the three-year period ending July 31 (a 14.9% return), and for the past 12 months (11.2%). The fund does have a 4.5% front-end load.
Patel has steered the fund to such stellar results by avoiding the telecommunications, retail, and entertainment sectors. The fund’s top five holdings are technology, energy, consumer, utilities, and broadcast/communication services.