NEW YORK (TheStreet) -- A low default rate due to the improving economy and relatively high yields continue to make the high-yield bond space attractive said Kevin Lorenz, portfolio manager for the TIAA-CREF High Yield Bond Fund.
"Currently yields are about 6.5%, spreads are about 500 basis points over Treasuries and this is an environment where the default rate continues to be very benign," said Lorenz. "The default rate has been under 2%, and while it's leaking a little bit higher, the long-term average is roughly 4.5%."
The TIAA-CREF High Yield Bond Fund is down 40 basis points so far in 2015. The fund has a trailing 12-month yield of 5.35%.
Issuance year-to-date had been very strong until this current patch of volatility, said Lorenz. That said, it has been dominated by refinancings which has kept the market from being flooded by new paper. As for the volatility, which has been stoked by problems in China and Greece, Lorenz said it's a matter of time horizon.
"If you look at high yield over the last 30 years, over short periods of time it has shown to be very volatile," said Lorenz. "If you take a longer time horizon, investors making a strategic asset allocation then returns tend to be dominated by the income as opposed to the price change and so we suggest that investors think about high yield as part of a long term asset allocation, as opposed to a short-term trading vehicle."
One name in particular that Lorenz is bullish on is Univision, a leveraged buyout from 2007 that recently filed to go public on the equity side, and is currently feuding with mogul and presidential candidate Donald Trump over his remarks about Latin American immigration.
"One of Univision's core advantages is a long-term partnership with Grupo Telemundo for programming. That really positions the company well. They have dominant assets across cable television, broadcast and radio," said Lorenz who is also positive on Cheniere Energy Partners' (LNG) paper.
"The beautiful thing about Cheniere is they have 20-year contracts with investment-grade companies ensuring their revenue stability," said Lorenz. "And we are fundamental investors looking for free cash flow and that revenue stability will lead to very consistent free cash flow generation."