Income-generating, resilient performance: The case for high-yield bonds in a balanced portfolio
They offer the potential of equity-like returns at lower risk, and have remained relatively steady in periods of market stress, says a Jupiter Asset Management fund manager
GLOBAL financial markets have had an extraordinary run since the beginning of this year. Despite rising US tariffs, geopolitical tensions and slowing growth, equities keep powering ahead.
Beneath this optimism, however, lies an asset class that many retail investors still overlook: high yield bonds.
Adam Darling, fixed income investment manager at Jupiter Asset Management, explains why high yield bonds deserve a place in retail portfolios, how he navigates current market conditions, and where he sees risks and opportunities in the year ahead.
Q: What advantages do high yield bonds offer for retail investors building their portfolios?
High yield bonds give investors access to a vast and diverse market of more than US$2 trillion (S$2.6 trillion) globally1, with themes and companies spanning many sectors. This breadth alone opens up a new pool of opportunities for retail investors looking to diversify.
At their core, high yield bonds are income-generating instruments. Investors receive steady coupon payments, much like collecting dividends from high-yielding stocks but with much less volatility. When global stock markets dropped sharply during Liberation Day in April, high yield bonds declined by only about two per cent2.
This is because high yield bonds have relatively short maturities (less than 5 years on average)3. Investors know that their principal is due back within a few years, so they tend to stay invested even during periods of market turbulence, limiting price swings.
Measured by returns adjusted for risk, or the Sharpe ratio, high yield bonds rank among the most efficient asset classes globally, combining attractive income, resilience in market stress and strong overall performance within a diversified portfolio.
Q: With default risks typically higher among high yield bond issuers, should investors be worried?
Not really. Investors often associate high yield bonds with distress because they often make headlines when something goes wrong. In Asia, many recall the defaults by Chinese real estate firms, but that is not representative of the global market.
Historically, the average par-weighted default rate for high yield bonds is about 3 per cent a year4. In other words, 97 per cent of the outstanding notional continues to pay coupons, more than offsetting the losses from those that fail.
Even when defaults occur, investors typically recover around 40 per cent of their investments on average across seniority levels, so the actual annual loss tends to be closer to 1.8 per cent5. The key is to avoid weak companies with poor balance sheets because those are the ones that can wipe out value entirely. With proper credit selection, defaults should not be a major concern for investors.
Q: Why do you think the markets have rallied strongly despite many looming risks?
Valuations across equities, credit and even cryptocurrency suggest investors are very bullish and convinced that there will not be a recession, that US-China tensions will remain contained, and that central banks will step in to support growth. But history tells us that when investors start believing nothing can go wrong, that is usually when something does.
We have seen similar moments before. In 2019, optimism was high just before the Covid-19 pandemic hit. And in 2021, low interest rates and easy liquidity from fiscal stimulus during the pandemic fuelled a rally that ended with surging inflation. The drivers of each bull or bear market are always different, but the pattern is familiar: markets often extrapolate the present too far into the future.
Today, fiscal support is fading and labour markets in the US and Europe are showing signs of softening. It does not mean a downturn is inevitable, but it does mean the odds of a negative surprise could be rising, even if everything still seems fine on paper.
As fund managers, our job is to stay mindful and disciplined. We avoid being swept up in the euphoria, keep a bit more liquidity, and wait patiently for better opportunities. Bull markets do not last forever and when the tide turns, we want to be able to take advantage rather than be caught off guard.
Q: What sets the Jupiter Global High Yield Bond apart from others in the market?
We are genuinely global. Most of our exposure is in the US and Europe, which is something Singapore-based investors do not usually get in the high yield space. This global reach gives us access to a much broader and more diversified set of opportunities.
Right now, the Fund (D USD Acc share class) yields more than 8 per cent in US dollars6. This means investors are earning an equity-like return, but without taking equity-like risk. For retail investors in particular, there are very few other products that offer this level of income with relatively low volatility.
Our investment approach is built on patience, discipline and a strong focus on credit quality. Since the Fund’s launch, our average default rate has been just 0.3 to 0.4 per cent a year, far below the average par weighted default rate for the Global High Yield market7.
This comes from doing the hard work on credit research and avoiding areas where we think investors are being too complacent about risk. We have been consistent about this and it has allowed us to minimise defaults and generate long-term returns for our investors.
In the current environment, we have been gradually reducing risk and becoming a bit more defensive. We are focusing on resilient sectors such as healthcare, utilities and consumer staples, while staying away from cyclicals. When markets do turn down, we want to be in a position to buy quality names at attractive valuations.
1 Bank of America. As of the end of 2024. 2 Bloomberg. In the first week of April 2025, the performance of the ICE BofA Global High Yield Index (USD Hedged) was -1.7 per cent, while the performance of the MSCI World Index was -8.5 per cent. 3 Weighted Average Maturity for the ICE BofA Global High Yield Index as of Oct 13, 2025. 4 Moody’s Global High Yield universe, par weighted default rate. Average since the end of 2006 and as of the end of 2024. 5 Moody’s, as of Dec 31, 2024. 6 Jupiter, as of Oct 10, 2025. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. USD D Income share class with an aim to distribute income on a monthly basis. Dividend computation basis: (last income distribution/NAV)*12. The Directors may in respect of the relevant classes, at their discretion, pay dividend out of gross income while all or a portion of their fees and expenses are charged to/paid out of the capital of the Fund. The rate of distributions is neither fixed nor guaranteed and is determined at the discretion of the Directors. Any distributions involving payment of dividends effectively out of capital may result in an immediate reduction in the net asset value per share of the Fund. Please note that a positive distribution yield does not imply a positive return. Investors should not make any investment decisions solely based on the information contained in the table above. 7 Moody’s, as at Dec 31, 2024.
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