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High yield case study: how an index allocation can complement an active manager lineup

High yield investors are increasingly recognizing that an optimal approach is not necessarily choosing between active and indexed approaches, but instead, thoughtfully combining both.

January 8, 2026

Arkady Ho, CFA

Client Portfolio Manager

In high yield, it’s not “either or”

By leveraging the alpha potential of active management along with the consistency and cost efficiency of an indexed approach, investors can construct more resilient and balanced portfolios. This piece discusses how a blended approach to a high yield portfolio may enhance outcomes by aligning return potential with risk control and cost management. This may be particularly valuable in an environment where evolving market structure and trading techniques are reshaping traditional sources of alpha by creating new ways for issuers to obtain financing.

We present a case study evaluating the active high yield manager lineup of an actual client—an exercise undertaken at their request. We found that several of their managers have underperformed over the long run on a net-of-management fee basis (Figure 1). As a result, the client wanted to explore the potential benefits of incorporating an indexed approach alongside their active high yield allocation.

Read the case study

Review our data on how fees can be lowered by substituting an index allocation for different combinations of managers who either underperformed, had less diversifying alpha profiles, or both.

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The views expressed are the views of Arkady Ho, CFA through December 1, 2025, and are subject to change based on market and other conditions.

This document contains certain statements that may be deemed forward- looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.

Diversification does not ensure a profit or guarantee against loss

Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Investing in high yield fixed income securities, otherwise known as “junk bonds”, is considered speculative and involves greater risk of loss of principal and interest than investing in investment grade fixed income securities. These Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

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