So the use case for high yield within broader portfolios. One of the things that we had been saying over the past year or so is that, you know, a higher than average allocation to high yields in this environment does make a lot of sense. If we think about the 70s is the most probable kind of roadmap for how the markets are likely to evolve. It is equities are likely to underperform, but there's still a significant amount of volatility within the equity market. Investment grade has a lot more interest rate risk than it ever has in the past, although it's still very high quality companies and very little credit risk from high yield and leveraged loans perspective kind of touched on some of the credit metrics within high yield are lessened relative to the past. That volatility is significantly less than what it has been in the past, but yet yields are still very competitive. So when we look forward, we do think, given that overall environments, we do think high yield is likely to be one of the better performing asset classes. And then kind of thinking about how we manage high yield. Right? we truly believe that owning kind of a little bit more concentrated portfolio of a little over 100 names of high quality companies is going to lead to outperformance. And, you know, if you look at how our funds have performed, we have significantly added alpha with a lot less underlying risk in the portfolios. And so we think that philosophy translates into good tangible results. And so couple that with above average high yield allocations, we think that sets investors up for good performance over the next kind of five, 10 years. So why would leverage finance be a good part of the marketplace to be involved in today, just given where the Fed is in terms of a rate hike cycle? And so if you take a look at the characteristics of leveraged loans and high yield separately, it's pretty easy to see why. First of all, with leveraged loans, you get the benefit of floating rates. And so as the Fed hikes, you actually get that benefit flowing through into coupon for leverage loans. On the high yield side, you actually have pretty good quality for the overall asset class. So double B's are actually from a quality perspective, the highest of high yield, but double B's make up about 54 or 55% of the high yield index. And then when you take a look at each asset class, just in terms of the composition, what you can see is on the leverage loan side, you're getting a little bit more exposure to health care, which is a more defensive sector. It's probably one of the more chunkier sectors within the leverage loan space. And then the second was it is IT. And if you think about where the Fed is today from a rate hike perspective, the possibility they could actually break something and the need for the Fed to actually reverse and take rates back down again, that could actually prove to be very beneficial for the IT sector from a multiple perspective in terms of enterprise value multiples. And that could actually help improve the subordination and the buffer behind leveraged loans in the capital structure. But switching gears and going back to high yield for a second, looking at the composition there, we talked about double B's being a larger part of the index. It's also interesting to note that double B's are the least interest rate sensitive that they've ever been in the history of the high yield index. So that definitely speaks volumes as the Fed is here in a rate hike cycle. But if you think about the composition of those double B's, there's a lot of quality from an issuer perspective in there too. Cable is a large, chunky part of the double beat index or the double beat portion of the high yield index. We actually are extremely constructive on that sub sector. We think even through their CapEx builds today, they should be free cash flow positive and future proofing their business models. The other thing to note from a industry perspective, if you were to switch down from double B's down into the CCC territory and think about it expressing a view there, if that's what you choose to do, is a disproportionate amount of the CCC side of high yield is actually health care and IT so for health care, actually a fairly defensive part, relatively speaking, defensive compared to other industries out there. And from an IT perspective, the same is true as what I mentioned on the leveraged loan side. If you want to take a positive view on what the Fed may have to do if they break something, take rates back down again, you have that benefit of potentially improvement in that subordination and buffer behind the loan and the high yield bond, the capital structure.
