Achieving Outcomes Through Active Management

A key feature of SDHY is that its outcomes are often shaped by “off-model” events that static metrics or even YTW may not capture. Bonds may be called early, tendered above par, or see extension risk work in the investor’s favor. These dynamics create a wide range of potential outcomes, with realized returns frequently exceeding modeled expectations for managers who are proactive, nimble and attentive to the details, allowing them to stretch singles into doubles.

Unlike passive exposure to broad credit indices, actively managed SDHY portfolios can take advantage of the market’s complexity particularly around call features, M&A, and the idiosyncratic nature of short-dated bonds.

A few recent cases highlight how proactive decisions can translate into tangible outcomes.

YTW is in the eye of the beholder: In early 2025, 2028 senior notes of a North American energy producer were trading at a YTW of 7.5% at the time. Six months later, the issuer refinanced and tendered for the bonds at 101.5, well ahead of the first par call date. The trade produced a realized yield near 10.9%, demonstrating the potential for early call activity to enhance returns above initial projections.Corporate Catalysts: M&A activity can also generate upside. In 2024, an issuer in the building materials sector was acquired by a large retailer, which triggered a make-whole call at 103.39. Even if these bonds had been purchased at a modest premium, the acquisition catalyzed a value creation event and led to a double-digit IRR, which is an outcome driven by a corporate event, not by static yield measures.To Call or Not to Call: Extension risk sometimes benefits the investor. When a bond trading above par is not called as expected, the portfolio continues to collect the coupon, further compounding returns over time. This is particularly powerful in higher-coupon issues, where additional carry can materially increase the realized yield.

These situations cannot always be predicted, but they are not random. They result from disciplined credit selection, close monitoring of corporate behavior, and the ability to act decisively as circumstances change. For allocators and investors, this underscores the importance of not just which assets you own, but how you manage them especially in segments like SDHY, where active oversight can make a measurable difference.

Batter Up

We believe short duration high yield has carved out a distinct place in today’s fixed income landscape. For allocators seeking a combination of income, resilience, and flexibility, SDHY stands out for its ability to deliver steady returns with less sensitivity to interest rate swings and market volatility. The asset class can play multiple roles across the portfolio, providing yield enhancement, liquidity management, and a defensive counterweight to riskier exposures.

But as recent examples show, the real value of SDHY is often unlocked through active management. Navigating call schedules, credit events, and reinvestment opportunities requires judgment and agility. In this part of the market, outcomes are shaped as much by what investors do as by the environment itself.

Just as in baseball, sometimes the smartest strategy is not swinging for the fences but stringing together base hits and hustling for the extra base—steadily building your score while minimizing unforced errors. And that could not be truer for credit investing.