NEW YORK (TheStreet) -- Investors have become overly bearish on high-yield bonds and they shouldn't be considering the economic environment, said James Dudnick, portfolio manager for the AllianzGI Short Duration High Income Fund (ASHIX)
Dudnick added that a lot of high-yield investors are still smarting from last winter's selloff. That dip in the market arose primarily as a result of problems in the energy patch which Dudnick's team avoided through its conservative approach.
"The big driver of negativity in energy high-yield is exploration and production," Dudnick said. "A lot of debt was raised to invest in shale projects and we actually have no allocation to that in our fund. Our energy exposure is to pipelines, the companies that are transferring the oil as opposed to producing it."
By steering clear of the exploration and production players, Dudnick's fund, which yields about 5.2%, rose 51 basis points in the fourth quarter of 2014 when the typical fund on average had declined 1.5%, according to Morningstar. The AllianzGI Short Duration High Income Fund's return is up 3.4% year to date, ahead of its benchmark, the Barclay's U.S. Aggregate Bond Index.
When it comes to where he finds yield now, Dudnick said he takes a conservative approach by purchasing the issues that are not attractive to a total return high-yield manager but are compelling to his team's less adventurous strategy.
"On a risk-adjusted basis we are buying lower volatility and getting a higher coupon out of it," Dudnick said.
Dudnick said defaults are well-known in the high-yield market so it is not difficult for a conservative manager to avoid those land mines. And in terms of new paper landing in the market before investment bankers hit the Hampton's beaches, Dudnick said that is not much of a risk either.
"Year to date we have been surprised by the lack of issuance but that's because there are not a lot of near-term maturities that need to be addressed," said Dudnick. "That means that the high-yield market is in pretty good shape from a maturity schedule."