There will be more defaults, but it won’t be caused by the type of issuers that issue high yield bonds.” Wang says since the beginning of the year, the majority of search activity from super fund clients has been in investment grade credit. From a valuation perspective, she says now is a great time for super funds to invest in opportunistic credit. But taking account of the fact that we are still in a sliding global economy, super funds should exercise caution.

Doyle agrees attractive valuations should not blind super funds to the inherent risks within the asset class. “As we’ve learnt over the last two or three years, just because something appears to be attractively priced doesn’t necessarily mean the value will be realised,” he says. “There may be liquidity and a whole bunch of other issues embedded in it. The issues with credit are security structure, issuer risk, term, where the credit sits in the capital structure of the issuing entity. All these things vary considerably from issue to issue so you do need to be careful in making a fundamental assessment as to what the risks are; making sure you do fully understand the underlying characteristics of the investment that you’re making.”

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