High Yield Credit Product Options for a PA?

Based on the most helpful WSO content, here are some insights and options for high-yield (HY) credit products and strategies to consider for your personal account (PA):

1. Public High-Yield Funds:

   • These funds invest in the debt of larger companies, typically with facilities of $400MM+ to promote liquidity and enable active management.
   • Investment opportunities are marketed by leveraged finance groups at larger banks, and trading desks facilitate secondary transactions.
   • Public HY bonds/loans often lack maintenance covenants, so liquidity and active management are crucial to avoid "hairy" situations.

2. Private Credit Options:

   • Private credit can offer better returns with comparable risk profiles relative to liquid products. It also has limited correlation to equities and lower portfolio volatility (short-term, due to illiquidity).
   • Funds with a bias toward lending into the senior secured slot within the capital stack can provide muted risk relative to the yields.

3. CLO Liabilities:

   • CLO (Collateralized Loan Obligation) liabilities, especially in high-quality tranches (e.g., AAs or As), can offer double-digit yields when acquired at a discount during broader market selloffs. These products provide a significant embedded loss cushion and attractive risk/reward profiles.

4. Floating Rate Products:

   • Corporate loans and ABS (Asset-Backed Securities) are in demand, particularly floating rate products, which can be a good hedge in rising rate environments.

5. Creative Strategies for Small Capital Bases:

   • Consider diversifying into stressed or opportunistic credit strategies, which can yield higher returns (e.g., S+1000 cash pay or a mix of PIK/Warrants).
   • Explore distressed or special situations credit funds, which target high teens returns by solving balance sheet problems or extracting value from businesses.

6. Market Timing and Diversification:

   • Credit markets can be feast or famine. Timing is critical, as good opportunities often arise during market dislocations (e.g., March/April 2020).
   • Diversify across performing HY, L/S credit, and distressed/event-driven strategies to balance risk and return.

For a $100k capital base, focusing on liquid public HY funds or ETFs might be a practical starting point due to their accessibility and liquidity. If you're comfortable with illiquidity and have a longer investment horizon, private credit or CLO liabilities could be worth exploring. Always ensure proper due diligence and consider consulting with a financial advisor to align these strategies with your risk tolerance and financial goals.

Sources: Credit - Pod Shop/MM vs. Distressed/Special Sits HF, Credit Hedge Fund opportunities, Undergraduate Opportunities - Credit Funds, https://www.wallstreetoasis.com/forum/private-equity/qa-non-target-top-bucket-ssg-private-creditdirect-lending?customgpt=1, Dalio's all weather Portfolio - Value Investing version