Investment Objective

Our U.S. Broad Market High Yield Strategy seeks to maximize excess returns versus the Bloomberg High Yield 1% Issuer Capped Index over the long term.¹

Investment Philosophy

In our Broad Market High Yield Strategy, we seek to earn 125 bps of alpha with a tracking error budget of 200 bps versus the Bloomberg Barclays U.S. High-Yield 1% Issuer Capped Index.

We expect tracking error based on historical volatility measured over a long term period to occur from holding position sizes in portfolios that differ from the issuer’s weighting in the benchmark and from holding positions in issuers that are not in the benchmark.

PGIM believes that actively managed high yield bond portfolios, constructed from the bottom up using methodical, research-based subsector and security selection, can lead to consistent outperformance versus the broad high yield index with a high information ratio.

PGIM attempts to achieve this through well-diversified portfolios of performing credits that are carefully researched. Intensive fundamental research is conducted by a large and experienced internal credit research staff to identify strong and improving credits.

The size and experience of the research organization permit us to apply intense focus on individual securities identified from a broad pool of investment opportunities.

Portfolios are then actively managed to capture the best opportunities and minimize credit losses, within an environment of disciplined risk management oversight.

We use a sector based approach, whereby portfolio managers specialize on certain industries (typically 4 to 6 each). As a result of not having to cover the entire universe of industries, our sector PMs can (a) more deeply understand the issuers and trading levels in their sectors to better evaluate relative value and more quickly respond to market opportunities and (b) can have more frequent dialogue with, and as a result get more favorable treatment from, traders at brokers/dealers for secondary trades and also from capital markets/syndicates individuals at underwriters for new issues.

We inherently think long term and are typically patient investors. Also, our institutional client base tends to be more stable (less flows). These two attributes enable us to take advantage of market opportunities because, on a relative basis versus peers, we tend to be liquidity providers as opposed to liquidity takers. In a world of less liquidity, we can take advantage of available market inefficiencies.