How an Income Fund Makes Stocks Safer With High-Yield Bonds

“High-yield is very much a misunderstood asset class,” says Bellamy, the manager of the

Transamerica Multi-Asset Income

fund (ticker: TSHIX). “The lion’s share of the risk that you’re taking in high-yield is actually correlated more to equities. So, when we do the analysis in high-yield bonds, it’s a very equity-like analysis.”

The $626 million fund has the flexibility to invest in stocks, bonds, and preferred stocks for income. But given the fund’s high-yield debt exposure, Bellamy considers it a lower-risk version of a stock fund. For instance, the fund has 61% of the downside capture of the S&P 500 since its March 2014 inception—so when the stock market was down 10%, this fund fell only 6.1%. Although Morningstar puts the fund in the Allocation–50% to 70% Equity category, Transamerica compares it to the S&P 500 index on its website.

“What we wanted to avoid were investors getting into this fund thinking it was more of a fixed-income investment than an equity investment,” Bellamy, 57, says. “But determining the benchmark is always difficult.”

The goal has always been to provide more income and less downside than stocks, and in this strategy the fund has excelled. Transamerica Multi-Asset Income has beaten 91% of its 50% to 70% Equity category peers with a 7.1% five-year annualized return. Its current 3.9% yield is also attractive. During 2022’s rout, the fund is down 13.8% versus a 15.7% decline for its category peers and the S&P 500’s 22.4% drop.

The fund’s 0.72% expense ratio is average for its category. Although TSHIX is technically the institutional share class of the fund, it can be purchased for a $2,500 minimum investment at Charles Schwab. Meanwhile, Fidelity offers the A-share class (TASHX), which has a slightly higher expense ratio of 0.98%, without transaction fees or loads.

Having graduated from Cornell University in 1987, Bellamy got his start at broker Merrill Lynch on the sales side. “The thing I didn’t like about the sell side is you don’t really take much ownership in what you do,” he says. Bellamy went back to school, got his M.B.A. from Duke University and ultimately his Chartered Financial Analyst designation. He became a buy-side money manager of private accounts in 2000 at Trusco Capital Management.

In 2002, Bellamy joined investment manager TSW, which is the subadvisor to this fund, as a high-yield bond fund manager in the firm’s Richmond, Va., office. But after the 2008-09 market crash, he realized stock investors needed more defensive options. “We had clients come to us and say basically two things,” he recalls. “‘We don’t want to live through a 40% drawdown in the S&P 500 again, and we need more income.’” Eventually, TSW pitched the idea to Transamerica to sub-advise a fund that would yield three to five percentage points more than the S&P 500’s dividend yield—but with less volatility.

Bellamy uses his fund’s flexibility to navigate market volatility.

Photograph by Bobby Bruderle

High-yield bonds are less sensitive to interest-rate increases like the ones the Federal Reserve recently executed. Bond prices move inversely to rates, but the highest-yielding ones tend to move less. This is why Bellamy says high-yield bonds are more equity-like in their behavior: They respond more to the stock price moves and overall credit quality of their corporate issuers than to interest rates. If the equity of a high-yield issuer is doing poorly, chances are the bond is, too.

Depending on market conditions, Bellamy will shift the portfolio more to high-yield debt or to stocks. Stocks can comprise 20% to 60% of the portfolio, while bonds and preferred stocks can make up to 40%. Bellamy points out that in 2021, the average yield of BB-rated high-yield bonds was as low as 3.25%, whereas today, it’s about 7%.

“We’ve had a huge repricing in the high-yield market,” he says. “The risk is now more to the equity market than to high yield.” The fund’s composition reflects that: As of May 31, equities made up 47%, down from 58% at the end of 2021, while high-yield bonds were 48%, up from 37%.

Total Return 1-Yr 3-Yr 5-Yr
TSHIX -7.6% 7.6% 7.1%
Allocation–50% to 70% Equity Category -11.8 4.5 4.9

Note: Holdings as of May 31. Returns through June 17; three- and five-year returns are annualized.

Sources: Morningstar; Transamerica

Total Return
1-Yr 3-Yr 5-Yr
TSHIX -7.6% 7.6% 7.1%
Allocation–50% to 70% Equity Category -11.8 4.5 4.9
Top 10 Holdings
Investment / Ticker Weighting
Apple / AAPL 3.4%
SPDR Bloomberg Short Term High Yield Bond / SJNK 2.9
Bristol Myers Squibb / BMY 1.9
Alphabet / GOOG 1.8
Chevron / CVX 1.8
AbbVie / ABBV 1.7
Microsoft / MSFT 1.7
Merck / MRK 1.7
Pfizer / PFE 1.5
iShares iBoxx $ High Yield Corporate Bond / HYG 1.5
Total: 19.9%

Note: Holdings as of May 31. Returns through June 17; three- and five-year returns are annualized.

Sources: Morningstar; Transamerica

Bellamy tends to like smaller bond issues that larger institutional managers with more assets can’t buy as easily. He also favors underrated bonds, as they’re defensive and their prices rise with ratings upgrades.

One favorite holding is the BB-rated debt of


(BCO), the security company with armored trucks for transporting bank’s cash. The company “only has about $1 billion dollars outstanding in public debt,” Bellamy says. “Its management team, which we know, is really strong, and they are committed to de-levering [Brink’s] balance sheet.” The bond yields about 5.75%, less than other BB bonds, but Bellamy believes it is due for a credit rating upgrade.

Another holding,

Performance Food Group

(PFGC), the second-largest food distributor in the U.S., has similar debt characteristics to Brink’s. “Their management team has shown their ability to grow cash flow through acquisitions,” Bellamy says. “But what sets them apart is their ability to reduce leverage along the way.” The debt has a 5.50% coupon.

On the equity side, Bellamy favors dividend payers, often high-quality ones. Financial-services stocks currently make up 18.8% of the portfolio; profits on their loans to borrowers should increase alongside interest rates. One holding,


(C), will benefit from the widening gap—or yield spread—between the low rate it pays on depositor checking accounts versus the higher interest rate it receives on long-term mortgage loans, for instance. “It has…almost a 4% dividend yield,” he adds. “That’s a compelling investment for us.”

Meanwhile healthcare stocks like




(ABBV), and


(MRK) offer dividend yields above 3%. “Pharma has gotten incredibly cheap,” he says. “With an aging population, the need for prescription drugs is only growing.”

Given recent interest-rate increases, earning a decent yield with this fund shouldn’t be a problem. Just don’t confuse it with a bond fund.


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