High yield bonds have become a mainstream asset class for many institutional investors. Historic returns are impressive, particularly on risk-adjusted measures, and an allocation to high yield bonds can add value to an overall portfolio. For defined contribution (DC) pension schemes, high yield bonds represent an asset class with attractive features throughout a glidepath strategy, including continuing into retirement.
This paper explores the case for including high yield bonds within DC investment strategies. We look at what history has demonstrated about the performance characteristics of high yield bonds, where they can add value now, and how DC pension schemes can invest in them.