T. Rowe Price Makes Profit From High Yield Bond Investing


Mark Vaselkiv an investment banker at T. Rowe Price has managed three high performing high yield funds.

High yield funds are typically made of high yield bonds. Most firms would look at high yield bonds as threats rather than lucrative opportunities to turn a profit. The reason behind this is that high yield bonds are typically issued by companies that have extremely poor credit. The increased yields is meant to offset the possibility that continued financial mismanagement will prevent the issuing company from paying back bonds in the future.

T. Rowe Price’s High Yield Fund has performed at a 7.52% return meanwhile the average return for global high yield funds is 6.77%.

"We used to run a very conservative high-yield strategy all the way through 2002, but we found ourselves lagging and missing the upside potential," Vaselkiv said. "We've become more eclectic in our investment process."

The fund itself is diverse. 13% of bonds in the fund come from energy companies. There is an expectation that a rebounding in industry will cause these bonds to outperform.

Additionally, Vaselkiv believes that there is too much caution placed around high-yield bonds.

"In 40 years of history, the high yield market has only lost money, posted negative performance, six out of those 40 years, never two years in a row," Vaselkiv said. "There's an amazing mean-reversion dynamic in high-yield."

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Economics, Finance and Investing