Investors have become overly bearish on high yield bonds and they shouldn’t be considering the economic environment, says James Dudnick, portfolio manager for the AllianzGI Short Duration High Income Fund. Dudnick added that a lot of high yield investors are still smarting from last winter’s selloff. That fall in the market was predominantly due to problems in the energy patch which Dudnick’s team avoided through its conservative approach. ‘The big driver of negativity in energy high yield is exploration and production,’ says Dudnick. ‘A lot of debt was raised to invest in shale projects and we actually have no allocation to that in our fund. Our energy exposure is to pipelines, the companies that are transferring the oil as opposed to producing it.’ By steering clear of the E&P players, Dudnick’s fund, which yields 5.2%, was up 51 basis points in the fourth quarter of 2014 when the average fund was down 1.5%, according to Morningstar.
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