Over the past seven years or so, high yield investors have been handsomely rewarded. Since the depths of the financial crisis in 2008, only the U.S. stock market has outperformed high yield among a large basket of various asset classes, and the high yield market achieved its performance with far less volatility.

But after such a strong stretch, investors may now be wondering what’s next. The U.S. economy is on the mend, the Federal Reserve has ended its quantitative easing (QE) program, and interest rates may be poised to move higher later this year. Meanwhile, oil prices continue to be volatile, and the global economy (excluding the U.S.) looks less than healthy. With all of that to think about, BlackRock’s Jim Keenan and Leland Hart offer their outlooks for the balance of 2015 and weigh in on some of the key considerations for high yield bond and bank loan investors.

  • High yield bonds and loans combine characteristics of both fixed income and equity, so returns are more correlated to equity than traditional fixed income. Over time, those characteristics tend to offer a risk-return profile that can make them attractive as a strategic portfolio allocation.
  • High yield companies are in good financial shape, with improving cash flow putting these companies in a better position to pay off their debt.
  • In a rising interest rate environment, high yield and loans historically have outperformed.

Investment Directions

In-depth market commentary, analysis and actionable investment ideas from BlackRock’s leading strategists.

Stock and bond values fluctuate in price so the value of your investment can go down depending on market conditions.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets, in concentrations of single countries or smaller capital markets.

Investments in emerging markets may be considered speculative and are more likely to experience hyperinflation and currency devaluations, which adversely affect returns. In addition, many emerging securities markets have lower trading volumes and less liquidity.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are those of the portfolio manager profiled as of June 5, 2015, and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that may, in certain respects, not be consistent with the information contained in this report. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

You should consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the fund and are available, along with information on other BlackRock funds, by calling 800-882-0052 or from your financial professional. The prospectus should be read carefully before investing.

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