Morningstar: Barings versus T. Rowe Price in global high yield bond

Bond markets struggled in the fourth quarter of 2024. Inflation proved sticky in the US, dampening hopes of larger interest-rate cuts and sending long-term bond yields higher. In Europe, political volatility in France and Germany, along with a more moderate outlook for ECB rate cuts in the coming year, dragged bond returns lower. 

Global high-yield bond flows were flat for the quarter amid uncertainty around US economic policies in anticipation of incoming US President Donald Trump’s January 2025 inauguration. The Morningstar Global High Yield Bond USD Index (which has a roughly 65 percent weighting in US issues) lost 1.19 percent over the three-month period in USD. Still, thanks to their lower sensitivity to interest rates, high-yield bonds managed to outperform investment-grade debt. Buoyed by strong returns in the earlier part of the year (particularly the third quarter) the high-yield index ultimately ended the calendar year up 6.80 percent.

For investors considering high-yield exposure, we take a closer look at two funds in the Morningstar Global High Yield Bond category that are qualitatively rated by our analysts, discussing their similarities and differences: Barings Global High Yield Bond and T. Rowe Price Global High Yield Bond.

People

Both Barings Global High Yield Bond and T. Rowe Price Global High Yield Bond boast seasoned lead managers with more than two decades of experience. That, combined with deep analyst teams, underpins their Above Average People pillar ratings, but additional resources are also at play.

Scott Roth and Craig Abouchar have led the Barings fund since 2012 and 2016, respectively. They are joined by three comanagers across Europe and the US. This set-up helps reduce key-person risk and provides a good runway of talent. The quintet is supported by ten portfolio managers and thirty high-yield bond and leveraged-loan analysts. A key advantage is the team’s access to a ten-member special situations unit, which provides support in cases of distressed debt or defaults. Additional input is provided by the global high-yield allocation committee, consisting of senior investment professionals from the entire fixed-income group at Barings.

Michael Della Vedova and Rodney Rayburn have steered the T. Rowe Price fund since 2015 and 2019, respectively. Rayburn’s experience with US distressed debt and special situations is a plus, and well complimented by Vedova’s familiarity with the European high-yield market. The managers are well supported by an additional six global high-yield portfolio managers and nineteen dedicated high-yield analysts. Additionally, the managers frequently leverage the firm’s large equity analyst team for valuable insights.

Process

Both strategies earn Above Average Process Pillar ratings, owing to effective and consistent execution of their distinct approaches. However, their investment processes differ in the proportional emphasis placed on top-down inputs versus bottom-up security selection.

The Barings strategy follows more of core bottom-up process. Singular credit selection is driven by two investment committees, one for US high yield and one for European high yield. The senior investment professionals on each committee vote to approve the inclusion of analysts’ recommendations in a firm-wide buy list, or to mandate sales. Top-down inputs are very limited, as the recommendations of the firm’s Global High Yield Allocation Committee mainly sets US/Europe allocation targets. 

On the other hand, the T. Rowe Price strategy follows a multilayered approach, which marries bottom-up credit selection with top-down macro analysis. Top-down views from the asset-allocation committee and high-yield portfolio management team determine the overall risk appetite of the strategy. The managers then draw on the credit research analysts to provide the industry overviews that inform sector positioning, and to find attractive credits to populate the portfolio holdings.

Portfolio

The Barings strategy is benchmark-agnostic; therefore, the portfolio’s sector and credit-rating over- and underweights mainly result from bottom-up security selection. For example, the fund held a 2 percent overweighting in energy issues in the final quarter of 2024, due to several favored picks in the sector. Meanwhile, the sustainability overlay applied to the Luxembourg-domiciled T. Rowe Price strategy often leads to underweights in sectors such as mining and metals, gaming and energy. 

The strong emphasis on bond picking results in a slightly more concentrated portfolio for Barings (typically holding 150 to 250 names), whereas T. Rowe Price’s team manages a more diversified portfolio (typically holding 250 to 350 names).

On the ratings side, the Barings team held a 20 peercent underweighting in BB rated credit during 2024 versus its ICE BofA Non-Financial Developed Markets High Yield Constrained Index, alongside a 10 percent off-benchmark allocation to investment-grade fare (mainly BBB-rated credit). 

In contrast to that higher-quality tilt, the T. Rowe Price team has typically held an overweighting in CCC rated credits (a few percentage points in magnitude), versus its JP Morgan Global High Yield Index’s 10 to 12 percent allocation in recent years and has kept off-benchmark investment grade fare to low single digits. 

Performance

Barings Global High Yield Bond has consistently outperformed peers and its benchmark since its 2016 inception and beats 85 percent of category peers over the five years through December 2024. Impressively, it also has a lower standard deviation than most peers, and has significantly outperformed the average peer and the category index during periods of market downside – owing mainly to strong security selection, though regional tilts have also been additive.

T. Rowe Price Global High Yield Bond has outperformed 85 percent of peers since its 2001 inception, and security selection has also driven the bulk of that outperformance. However, the strategy’s willingness to take risks, including stakes in the lowest-quality CCC rated segment, has made it slightly more volatile than the average peer. As a result of difficult years in 2020, 2022 and 2024, the fund lands ahead of 60 percent of peers over the five years through December 2024.

Jeana Marie Doubell is investment analyst fixed income EMEA at Morningstar. Morningstar is a member of Investment Officer’s panel of experts.