Run for the exit? Determining when an industry's bonds may be on the brink of collapse

For high yield investors, taking long credit risk in industries that are undergoing secular changes presents a challenge, writes Meridith Alin, senior credit analyst at NN Investment Partners.

Several sectors, including many in technology, media and telecommunications (TMT) in the US, are in the midst of secular changes that have raised questions as to the longevity of — and thus the wisdom of investing in — these industries. However, high yield bonds in volatile sectors frequently offer attractive relative value, making it difficult to simply forgo long exposure and risk underperformance. Today, high yield investments offer limited dispersion and skinny yields. With the US high yield market yielding 5.6%, fund performance can hinge on exposure to higher yielding sectors su...