PORTFOLIO SPOTLIGHT
“ A positive growth backdrop is good for risk assets , good for high yield , good for spreads ,” Delbos says . “ When we talk to management teams at our companies , they generally feel pretty good . Companies are generating solid free cash flow . While there may be a trade-off with potentially high inflation , we ’ re also looking toward growth being potentially better than what we ’ ve seen during the past 12 months .”
The technology sector is the fund ’ s biggest sector overweight against its benchmark , and the fund gets that exposure in both high-yield bonds and leveraged loans . The managers say they particularly like software businesses with highly recurring revenue , exceptional growth rates , very little churn and very entrenched businesses .
“ They ’ re some of the better businesses within the high-yield market ,” Delbos says . “ We ’ ve had some real winners there over the past couple of years . It ’ s a sector we continue to like and find value in , and
“ A positive growth backdrop is good for risk assets , good for high yield , good for spreads . When we talk to management teams at our companies , they generally feel pretty good .”
— David Delbos
Manager Mitchell Garfin Age 50
Professional Background He is a BlackRock managing director , and co-head of U . S . high yield within BlackRock ’ s Global Credit team . He is also responsible for managing global high-yield strategies . He joined BlackRock in 1997 as an analyst in the account management group working with taxable financial institutional clients . He joined the portfolio management group in 2000 as a credit research analyst , and in 2005 moved to portfolio management .
Outside Interests Golf , spending time with his wife and three children .
Manager David Delbos Age 46
Professional Background He is a BlackRock managing director , and co-head of U . S . high yield within BlackRock ’ s Global Credit team . He is also responsible for managing global high-yield strategies . He joined BlackRock in 2002 as a credit research analyst in the leveraged finance group . He transitioned to a portfolio management role in 2012 . Before joining BlackRock he was an analyst at Deutsche Bank Securities Inc .
Outside Interests Spending time with his wife and two children . He loves to travel and considers himself to be a foodie .
PHOTOGRAPHY OF PORTFOLIO MANAGERS COURTESY OF BLACKROCK
likely will continue to be an overweight this year and beyond .”
The old saw that proclaims “ cash is king ” certainly applies to corporate balance sheets . “ Software represents the razor / razor blade model ,” Garfin says , referring to a business model that sells one product at a low price and a related product at a high price .
“ Having strong cash flows enables those businesses to take on more leverage ,” he continues . “ We ’ re comfortable with good , relatively high-quality companies with greater stability of cash flows and which have more leverage on their balance sheets . These are names we ’ ve been focused on in terms of underwriting credit .”
Portfolio Fit
Even if the high-yield market at large is structurally sounder than it was in years past , as Garfin and Delbos contend , investors should still be cognizant of default risks . Remember , the high-yield sector took it on the chin during the dotcom crash and the Great Recession . Unless there ’ s a black swan event , the current outlook doesn ’ t seem ominous . But it ’ s not entirely sanguine , either .
In a December report , the credit rating agency Fitch Ratings forecast a default rate on U . S . high-yield bonds of between 2.5 % and 3.0 % in 2025 , an increase from the trailing 12-month default rate of 2.0 % as of November 2024 .
The managers of the BlackRock High Yield Fund say they ’ re sidestepping some of the sectors with secular headwinds , including the retail sector , parts of the media sector , and parts of the cable and satellite sectors .
As to where high-yield debt fits within investor portfolios , they believe that question has evolved as the high-yield market has evolved . “ Folks across the board now look for high yield as more of a stable , long-term part of their portfolio — less of a trade , and more of an investment ,” Delbos says . “ You ’ ve seen the durability and the lower volatility in spreads over the past couple of years , and that ’ s what I expect to continue going forward .”
46 | FINANCIAL ADVISOR MAGAZINE | MARCH 2025 WWW . FA-MAG . COM