INSIGHTS &PERSPECTIVESSPECIALTY FIXED INCOME | HIGH YIELDJUNE 2023

The Case For a Strategic Allocation to High Yield
We believe the reset in fixed income prices
provides a potentially unique opportunity
for investors to de-risk their portfolios andbenefit from lower expected volatility, but
without making a material sacrifice inreturn potential. Certain forecasts suggestthat the returns for high yield in the next few
years may be at a similar level to what
could be expected from equities.
It’s clear that the changed interest rate dynamic marks a majorchange in the financial conditions that prevailed during theprevious decade. In turn, we believe this makes it essential tothink unconventionally in making high yield allocations.
FIGURE 1: SELECTED DEVELOPED MARKET LONG TERM
RETURN ASSUMPTIONSLONG TERM CAPITAL MARKETS ASSUMPTIONS FORECAST PERIOD |10 TO 15 YEAR HORIZO NEQUITIES

FIXED

10.1%
7.9%

US Large
Cap

7.3%

UK

7.8%

8.4%

7.9%
6.8%

Japan

Euro area

Emerging ACWI World
Markets
EquityHigh
Yield

Total returns in local currency terms, as of September 30, 2022
Source: JP Morgan Asset Management 2023 Long-Term Capital Market
Assumptions.

High Yield Attractively Positioned
Risk averse investors are often willing to give up potential
returns when there are lingering fears of an economic
slowdown, which would sap corporate earnings and push up
equity price volatility. However, the shift in fixed income
markets suggests that the return differential between highyield and equities is minimal, but with the former offering
potentially less risk. We believe this could be an opportunity forhigh yield investors to seek compelling returns, while
managing their portfolio’s risk profile.
Today high yield bonds trade at spread levels in line withhistorical averages, provide a yield above 8%1, and according
to some assumptions may offer a 10-year annualized returnthat can be highly competitive with the long return
expectations for equities, albeit with the possibility ofconsiderably less volatility.1

The High Yield Market Today
Changes in recent years have driven structural improvementsin the high yield market. The cumulative effect of these shifts
has made the market more conducive to investors, particularly
more risk averse ones.
It is significant that companies represented in the high yield
market in 2023 tend to be of higher financial quality than inprevious economic downturns. As of the end of 2022, the ICE
BofA US High Yield Index consisted of 50% BB-rated bonds up
from 43% in 2011. Meanwhile, the proportion of CCC-rated
bonds has decreased to 12% (see Figure 2 on the next page).
This shift can be attributed to generally higher quality issuance,‘fallen angels’ and smaller private companies moving to otherareas of leveraged credit.
A fallen angel refers to a bond which was originally issued withan investment-grade rating but, has since been downgraded to
non-investment grade, or high yield status due to theweakening financial condition of the issuing company.

1. Sources: ICE Data, yield to worst of ICE BofA US High Yield Index was 8.6% as of 5/15/2023; JP Morgan Asset Management

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particularly the case with the shift in the market from liquidity
driving performance to one where underlying company
fundamentals are the primary performance driver. Thechanged market dynamics, driven by higher rates and reduced
liquidity, have correspondingly increased the importance of
security selection. We believe this boils down to avoiding losers
and picking winners.

FIGURE 2: PERCENT PAR VALUE IN ICE BOFA US HIGHY I E LD I N D E X
60%

% BBs

50%

40%

Long-Term Allocation Strategy
A key component of high yield’s attraction is the above 8%yields3 currently on offer, which is around 1.5% higher thantheir 20-year average. This means that the asset class cangenerate returns for a portfolio, while providing diversificationfrom equities. In our view, high yield thus has the potential tomatch equities returns, while maintaining the potential tooutperform in volatile or down markets.

20%% CCCs0%
Dec-08Jun-12

Dec-1512%

Jun-19Dec-22

Data as of December 31, 2022
Source: ICE BofA US High Yield Index.

Typically, investors have looked at high yield as a tacticalallocation. From a relative value perspective, US high yield hashistorically outperformed US equities in subsequent one-year
periods when the spread between the two is 3.5% or higher(see Figure 3 below).

One reason for this more encouraging backdrop is theincreased presence of public companies, with around 69% of
the US high yield market having publicly traded equity. In
general, public companies provide more financialtransparency which means that investors and analysts can beinformed.

Overall, it is our view that the current heightened value themarket is offering makes it an ideal time to consider long-term
strategic allocations. High yield also provides potentially betterrisk-adjusted prospects than fixed income sub-strategies suchas private credit and leveraged loans which are more heavily
exposed to smaller companies in just a few sectors like
technology and healthcare.

Attracting Strategic Investors
Another change is apparent in the growing numbers ofstrategic and long-term investors in the high yield sector. This
has resulted in greater stability. The investor base has become
more diverse and less leveraged to include pension funds andinsurance companies as well as institutional buyers fromoutside of the United States.2

F I G U R E 3 : U S H I G H Y I E LD S U B S E Q U E N T 1 - Y E A R
P E R F O R M A N C E W H E N T H E S P R E A D I S 3 . 5 % O R HI G H E R

83%

All of this has helped to mold the market’s increasingly
improved issuer profile. Further stability is also coming fromthe reduced capital flowing into high yield, leading to a market
with better quality and less exuberance. (source: Bloomberg)

Asymmetric Returns

12.1%

High yield offers investors an asymmetric return profile
combining upside potential with downside risk. Nevertheless,compared with equities, high yield’s downside risk can be lessextreme. Just as stock picking determines the returns of anactive equity strategy, skill at individual credit selection is
crucial to avoid high yield losses and, in the worst-casescenario, bankruptcies.

% of Times US HY
Outperforms US Equities

Median US HY
Outperformance

Data as of May 15, 2023
Source: MacKay Shields utilizing Bloomberg data. Spread between ICE BofAUS HY Index Yield and the S&P 500 Index Current Earnings Yield. Past
performance is not indicative of future results.

In a regime change environment where rates are higher, credit
selection will tend to drive return dispersion. This has been
2. Source: JP Morgan
3. Sources: ICE Data, yield to worst of ICE BofA US High Yield Index was 8.6% as of 5/15/2023

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INSIGHTS & PERSPECTIVESSPECIALTY FIXED INCOME | HIGH YIELD

Conclusionhigh yield at a time when returns are expected to be similar butwith less risk. Another benefit beyond the attractive yields
available is that this is a shorter duration asset class thanprivate credit. What’s more, high yield issues are often more
liquid than loans and offer more transparency.

We believe there are solid merits to the case for the value inhigh yield and employing active security selection to unlock it.
Such an approach is predicated on understanding individualcompanies and sectors to build a diverse, all-weather portfolioof high yield credits. Applying this strategy in a consistent,
fundamentally focused fashion makes it possible to mitigate
downside risk, while taking advantage of attractive entry points
in the market.

The paradigm shift in fixed income markets underscores afundamentally different financial environment and highlights
the need for unconventional thinking in market analysis,
security selection and portfolio construction. We encourage
investors to consider this opportunity in consultation with theirinvestment partners.

The current market juncture may offer institutional investors avaluable opportunity to shift higher volatility equity exposure to

ABOUT RISK:High yield securities (junk bonds) have speculative characteristics and present a greater risk of loss than higher quality debt securities. These securities can also be
subject to greater price volatility.
SOURCE INFORMATION“Bloomberg®”, “Bloomberg Indices®”, Bloomberg Fixed Income Indices, Bloomberg Equity Indices and all other Bloomberg indices referenced herein are service marks ofBloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been
licensed for use for certain purposes by MacKay Shields LLC (“MacKay Shields”). Bloomberg is not affiliated with MacKay Shields, and Bloomberg does not approve, endorse,
review, or recommend MacKay Shields or any products, funds or services described herein. Bloomberg does not guarantee the timeliness, accurateness, or completenessof any data or information relating to MacKay Shields or any products, funds or services described herein.
ICE Data Indices, LLC (“ICE Data”), is used with permission. ICE® is a registered trademark of ICE Data or its affiliates, and BofA® is a registered trademark of Bank of America
Corporation licensed by Bank of America Corporation and its affiliates (“BofA”) and may not be used without BofA’s prior written approval. ICE Data, its affiliates and theirrespective third-party suppliers disclaim any and all warranties and representations, express and/or implied, including any warranties of merchantability or fitness for aparticular purpose or use, including the indices, index data and any data included in, related to, or derived therefrom. Neither ice data, its affiliates nor their respective thirdparty suppliers shall be subject to any damages or liability with respect to the adequacy, accuracy, timeliness or completeness of the indices or the index data or any
component thereof, and the indices and index data and all components thereof are provided on an “as is” basis and your use is at your own risk. ICE Data, its affiliates andtheir respective third-party suppliers do not sponsor, endorse, or recommend MacKay Shields LLC, or any of its products or services.
CREDIT RATING DISCLO SURES (FOR INDEX)ICE BA Credit Ratings
ICE BA utilizes its own composite scale, similar to those of Moody’s, S&P and Fitch, when publishing a composite rating on an index constituent (eg. BBB3, BBB2, BBB1).
Index constituent composite ratings are the simple averages of numerical equivalent values of the ratings from Moody’s, S&P and Fitch. If only two of the designated agencies
rate a bond, the composite rating is based on an average of the two. Likewise, if only one of the designated agencies rates a bond, the composite rating is based on that
one rating.
DEFINITIONS

A fallen angel refers to a bond which was originally issued with an investment-grade rating but, has since been downgraded to non-investment grade, or high yield status
due to the weakening financial condition of the issuing company.
Yield to worst is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting.
NOTE TO UK AND EUROPEAN AUDIENCEThis document is intended only for the use of professional investors as defined in the Alternative Investment Fund Manager’s Directive and/or the UK Financial
Conduct Authority’s Conduct of Business Sourcebook. To the extent this document has been issued in the United Kingdom, it has been issued by MacKay Shields
UK LLP, 80 Coleman Street, London, UK EC2R 5BJ, which is authorised and regulated by the UK Financial Conduct Authority. To the extent this document has
been issued in the EEA, it has been issued by MacKay Shields Europe Investment Management Limited, Hamilton House, 28 Fitzwilliam Place, Dublin 2 Ireland,
which is authorised and regulated by the Central Bank of Ireland.
NOTE TO CANADIAN AUDIENCE

The information in these materials is not an offer to sell securities or a solicitation of an offer to buy securities in any jurisdiction of Canada. In Canada, any offer
or sale of securities or the provision of any advisory or investment fund manager services will be made only in accordance with applicable Canadian securities
laws. More specifically, any offer or sale of securities will be made in accordance with applicable exemptions to dealer and investment fund manager registration
requirements, as well as under an exemption from the requirement to file a prospectus, and any advice given on securities will be made in reliance on applicable
exemptions to adviser registration requirements.
IMPORTANT DISCLOSURE

Any forecasts, figures, opinions or investment techniques and strategies set out herein and/or sourced from third parties are for information purposes only, are based on
certain assumptions and current market conditions and are subject to change without prior notice.

Availability of this document and products and services provided by MacKay Shields LLC, MacKay Shields UK LLP and MacKay Shields Europe Investment
Management Limited (collectively, “MacKay Shields”) may be limited by applicable laws and regulations in certain jurisdictions and this document is provided only
for persons to whom this document and the products and services of MacKay Shields may otherwise lawfully be issued or made available. None of the products
and services provided by MacKay Shields are offered to any person in any jurisdiction where such offering would be contrary to local law or regulation. This
document is provided for information purposes only. It does not constitute investment advice and should not be construed as an offer to buy securities. The
contents of this document have not been reviewed by any regulatory authority in any jurisdiction.
This material contains the opinions of certain professionals at MacKay Shields but not necessarily those of MacKay Shields LLC. The opinions expressed herein
are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and opinions contained herein should notSpecialty Fixed Income Solutions
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INSIGHTS & PERSPECTIVESSPECIALTY FIXED INCOME | HIGH YIELD

be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has beenobtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields
assumes no duty and does not undertake to update forward-looking statements. No part of this document may be reproduced in any form, or referred to in any
other publication, without express written permission of MacKay Shields LLC. ©2023, MacKay Shields LLC. All Rights Reserved.
Information included herein should not be considered predicative of future transactions or commitments made by MacKay Shields LLC nor as an indication of current or
future profitability. There is no assurance investment objectives will be met. Past performance is not indicative of future results.
COMPARISONS TO AN INDEX

Comparisons to a financial index are provided for illustrative purposes only. Comparisons to an index are subject to limitations because portfolio holdings, volatility and otherportfolio characteristics may differ materially from the index. Unlike an index, individual portfolios are actively managed and may also include derivatives. There is no
guarantee that any of the securities in an index are contained in any managed portfolio. The performance of an index may assume reinvestment of dividends and income,or follow other index-specific methodologies and criteria, but does not reflect the impact of fees, applicable taxes or trading costs which, unlike an index, may reduce thereturns of a managed portfolio. Investors cannot invest in an index. Because of these differences, the performance of an index should not be relied upon as an accurate
measure of comparison.

The following indices may be referred to in this document:
ICE BOFA US HIGH YIELD INDEXICE BofA U.S. High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic
market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at
the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstandingof $250 million. In addition, qualifying securities must have risk exposure to countries that are members of the FX-G10, Western Europe or territories of the U.S.
and Western Europe. The FX-G10 includes all Euro members, the U.S., Japan, the U.K., Canada, Australia, New Zealand, Switzerland, Norway and Sweden. Originalissue zero coupon bonds, 144a securities (both with and without registration rights), and pay-in-kind securities (including toggle notes) are included in the index.
Callable perpetual securities are included provided they are at least one year from the first call date. Fixed-to floating rate securities are included provided they
are callable within the fixed rate period and are at least one year from the last call prior to the date the bond transitions from a fixed to a floating rate security.
Contingent capital securities (“cocos”) are excluded, but capital securities where conversion can be mandated by a regulatory authority, but which have no
specified trigger, are included. Other hybrid capital securities, such as those issues that potentially convert into preference shares, those with both cumulativeand non-cumulative coupon deferral provisions, and those with alternative coupon satisfaction mechanisms, are also included in the index. Securities issued or
marketed primarily to retail investors, equity-linked securities, securities in legal default, hybrid securitized corporates, Eurodollar bonds (USD securities not issued
in the U.S. domestic market), taxable and tax-exempt U.S. municipal securities and DRD-eligible securities are excluded from the index. Index constituents aremarket capitalization weighted. Accrued interest is calculated assuming next-day settlement. Cash flows from bond payments that are received during the month
are retained in the index until the end of the month and then are removed as part of the rebalancing. Cash does not earn any reinvestment income while it is heldin the index.
S&P 500 INDEXStandard and Poor's 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing all major industries.
“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
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