Should high yield investors avoid new issues?

The ever-faster treadmill of new issues in high yield gives plenty of scope for letting standards slide. Perhaps it is better to focus on established borrowers, argues Donald Phillips, manager of the Baillie Gifford's High Yield Bond fund.

Long-term returns to investors in high yield bonds are heavily influenced by the yield offered at the time of investment. This yield represents something of a best case outcome, over longer periods of time. This is due to the fact losses from company defaults will, to a certain extent, tend to erode this income. At the present time, yields in the market are at historic lows. Therefore, the outlook for returns must also be poor when compared to history. Nevertheless, with savers still starved of yield, an income generating investment with the potential to provide a return close to 4% i...