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High-Yield Bond Funds: Increasing Blood in the Water

As reported by Bloomberg on December 13, 2015 (“Investors See Third Avenue Fueling More Bond Market Carnage”), “top bond managers are predicting more carnage for high-yield investors amid a market rout that forced at least three credit funds in the past week to wind down.”

The three bond funds that suffered losses within the past week include the Third Avenue Focused Credit Fund (which has announced the suspension of investor redemptions from its $788.5 million mutual fund), Stone Lion Capital Partners (which has announced the similar suspension of investor redemptions from its $400 million fund) and Lucidus Capital Partners (which has announced the liquidation of its $900 million portfolio).

Some Wall Street experts, including Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross, are predicting that an increasing percentage of high-yield funds may face a high level of withdrawal requests as more and more investors become concerned about the ability to get their funds back.

The root of the problem facing many high-yield funds appears to be the valuations of the securities that are held in their portfolios – securities that are valued based on the estimates of their portfolio managers that have no basis in fact or reality when those securities are later attempted to be sold. This forces a fire-sale of the securities at prices that are significantly below what they are being carried on the books of the funds at which then leads to the inability of those funds to meet investor redemption requests.

If you are an individual or institutional investor who has any concerns about your investment in the high-yield bond funds, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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