October 2009

When it comes to the sprawling global market for high-yield bonds, a multi-style investment approach may have its benefits.

“There is more than one way to exploit the varied opportunities in high yield,” says Jessica Hart, co-portfolio manager of the Northern Multi-Manager High Yield Opportunity Fund. “A multi-manager approach to this vast asset class seeks to provide broader exposure and diversification.”

Unlike many high-yield funds, the Northern Multi-Manager High Yield Opportunity Fund uses two specialty managers chosen by Northern Trust Company of Connecticut. The duo is paired because their differing strategies for investing in high-yield debt complemented each other well over several previous market cycles.

One of the managers combines top-down portfolio allocation decisions with fundamental credit analysis in an effort to achieve a highly diversified portfolio of cash-flow generating credits. The other manager uses an intensive bottom-up approach to help locate underpriced securities, some of which may not be in areas typically associated with high-yield bonds.

Out-of-benchmark exposure
The ability to invest outside the traditional high-yield benchmark is another distinctive aspect of the Fund.

“The global high-yield market is not a homogenous group,” Hart says. “There often are substantial differences in performance between the various sub-sectors and it makes sense to go after the best values.”

Those values could reside in developed or emerging debt markets, bank loans, convertibles, municipals, or even domestic investment-grade securities.

In fact, the Fund holds a sizeable amount of investment-grade U.S. bonds, an area generally off limits to most traditional high-yield funds.

Dampening risk
The Northern Multi-Manager High Yield Opportunity Fund’s objective is to beat its benchmark on a total return basis, but with less volatility. Broad diversification — the Fund generally holds more than 200 individual bonds — could smooth out the roller-coaster ride often associated with speculative debt.

The combination of flexibility, diversification, and the expertise of the two specialty managers suggests that the Fund could serve as a core holding within high yield — or nicely complement a more traditional offering.

Whatever its role, the Fund’s managerial makeup is no accident. “We don’t just punch a button and have a computer spit out an optimized blend of managers,” Hart says. “It’s the result of a long and specialized process that we’re very proud to offer our clients.”

Past performance is no guarantee of future results.

Diversification does not guarantee a profit nor protect against a loss.

Bond Risk: Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates.

High Yield Risk: Although a high-yield fund’s yield may be higher than that of fixed income funds that purchase higher-rated securities, the potentially higher yield is a function of the greater risk that a high-yield fund’s share price will decline.