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Article

How Credit Investing Helps Build Resilient Portfolios

In this post:

8.26.2025
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Executive Summary

  • Many investors overlook credit’s ability to deliver equity-like returns with less volatility—missing a powerful tool for income and diversification.
  • Bottom-up, fundamentals-driven research can uncover undervalued opportunities that broad benchmarks often miss.
  • Flexibly shifting across sectors, structures, and credit qualities can help capture value and preserve resilience as market conditions change.

While credit has long been a core building block for institutional investors, it remains underused in many individual and advisor‑managed portfolios. Overlooking credit means missing opportunities to diversify, manage risk, and enhance return potential. That potential is evidenced by the Barrow Hanley Credit Opportunities Fund, which holds a 5‑star Morningstar Rating for its 3‑year performance in the High Yield Bond category.[1]

We’ve spent decades unlocking value in an underfollowed, multi-trillion-dollar credit market. Our credit platform spans the full spectrum of public and private credit, with expertise in below-investment-grade segments like high yield bonds, leveraged loans, and private credit. These instruments can offer lower volatility than equities while providing a differentiated source of income and total return.

Historically, high yield credit has produced long-term performance within 100 to 200 basis points of the S&P 500®, with roughly half the volatility—driven largely by the steady stream of interest income. That income not only supports competitive long-term returns, but also helps cushion price swings, contributing to a smoother ride for investors.[2] Active management helps credit strategies to adapt across the cycle by adjusting exposures, identifying mispriced risk, and positioning for more consistent returns. Over time, this flexibility has the potential to outperform passive benchmarks and contribute meaningfully to long-term portfolio outcomes.

Rising Interest in Credit

In light of tech sector volatility, persistent inflation, and an uncertain macroeconomic backdrop, more investors are exploring advanced credit strategies. Participation remains highest in familiar assets like U.S. corporate bonds, where retail-sized trades account for approximately 65% of all transactions.[3]

Complex credit markets like high yield, leveraged loans, and private credit were long the territory of institutional investors. Today, these markets are opening up. New platforms and evolving product structures are making it easier for a broader range of investors to participate in areas that were previously off-limits.

Despite this progress, participation remains relatively low. We believe this reflects a perception that these markets are difficult to navigate and a lack of clear guidance on how they fit into portfolio construction.

That's a missed opportunity. Credit assets often exhibit low correlations with equities, a valuable trait during periods of economic uncertainty. When used strategically, they can help diversify risk and enhance portfolio resilience.

To make credit work harder in a portfolio, managers need the ability to shift exposure, evaluate underlying fundamentals, and respond to changing conditions. In a rate-driven and volatile market marked by elevated dispersion and uneven credit quality, that kind of active decision-making can help uncover opportunities that benchmarks may miss.

Seeing Through the Cycle

Our credit analysis is grounded in fundamentals, not driven by market trends or popular narratives. We rely on rigorous, bottom-up research to identify companies with low cash flow volatility, transparent capital structures, and governance that supports long-term resilience. To complement this issuer-level insight, we apply a top-down macro perspective to understand how broader market forces may influence portfolio positioning and risk.

We don't believe that risk is a byproduct. We believe instead that it’s a starting point. We assess how a company might perform under pressure—considering cash flow variability, asset coverage, and downside scenarios across the capital structure. That discipline stays consistent. What changes is how we express risk, adjusting our exposure to different sectors, structures, or credit qualities depending on where we are in the credit cycle. In periods of expansion, we may lean into opportunities with more upside potential. In late‑cycle or stressed environments, we emphasize durability and downside protection—seeking to preserve income while smoothing portfolio volatility relative to equities.

Our credit team speaks with more than 750 company management teams each year. These conversations help us uncover risks and opportunities that may not yet be reflected in market pricing. They also provide context that financial statements alone can’t capture, offering early signals on strategic shifts, capital allocation, and evolving industry dynamics.

Making Credit Count

For more than forty years, we’ve managed credit portfolios for institutions, helping them generate income, diversify risk, and adapt to shifting markets. We bring that same expertise to building portfolios for investors who want income, resilience, and the potential for long‑term growth. The result is a value‑driven credit strategy built to uncover undervalued opportunities across the market. Credit isn’t just a complement to equity—it’s a core building block for portfolios designed to balance reliable income with protection against market shocks and sustainable outcomes. We focus on delivering this combination through disciplined research, selective positioning, and a clear understanding of where value is hiding.

[1] MorningstarRating™ as of June 30, 2025.

[2] Damodaran, Aswath. Historical Returns onStocks, Bonds, and Bills: 1928–2024. New York University Stern School ofBusiness. Accessed July 28, 2025.https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

[3] Financial IndustryRegulatory Authority (FINRA).TRACE Fact Book: Corporate Bond MarketData. Published 2024. Accessed July 28,2025.https://www.finra.org/filing-reporting/trace/trace-fact-book

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ABOUT BARROW HANLEY GLOBAL INVESTORS

Barrow Hanley is a diversified investment management firm offering value-focused investment strategies spanning global equities and fixed income. Recognized as one of the few remaining firms dedicated exclusively to value investing, Barrow Hanley enjoys a boutique culture with a singular focus to assist clients in meeting their investment objectives. Today, Barrow  Hanley has approximately 100 employees, over half of which are investment professionals managing assets for our valued clients. Barrow Hanley stewards the capital of corporate, public, multi-employer pension plans, mutual funds, endowments and foundations, and sovereign wealth funds across North America, Europe, Asia, Australia and Africa. For further information, please visit www.barrowhanley.com.

General Disclosures:

All opinions included in this report constitute Barrow Hanley’s (BH) judgment as of the time of issuance of this report and are subject to change without notice. This report was prepared by Barrow Hanley with information it believes to be reliable. This report is for informational purposes only and is not intended to be an offer, solicitation, or recommendation with respect to the purchase or sale of any security, nor a recommendation of services supplied by any money management organization. Past performance is not indicative of future results. Barrow Hanley is a value-oriented investment manager, providing services to institutional clients.

Barrow Hanley Credit Partners® is a legally assumed name for the Alternative Credit investment team and investment strategies of Barrow Hanley Global Investors®, including Bank Loan Fixed Income, Collateralized Loan Obligations, and High Yield Fixed Income.
These investment summaries are provided for informational purposes only and should not be viewed as representative of all investments by the firm. This report includes certain “forward-looking statements” including, but not limited to, BH’s plans, projections, objectives, expectations, and intentions and other statements contained herein that are not historical facts as well as statements identified by words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, or words of similar meaning. Such statements and opinions contained are based on BH’s current beliefs or expectations and are subject to significant uncertainties and changes in circumstances, many beyond BH’s control. Actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive, market, and regulatory factors. Additional information regarding the strategy is available upon request.

© 2025 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Morningstar rankings are based on total returns. The Morningstar Percentile Ranking compares a Fund’s Morningstar risk and return scores with all the Funds in the same Category, where 1% = Best and 100% = Worst. The Morningstar Rating™ for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36‑59 months of total returns, 60% five-year rating/40% three-year rating for 60‑119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Ratings are for the share class shown only; other classes may vary.

Please contact us for more information.

214.665.1900
contactus@barrowhanley.com

‍
Barrow Hanley Global Investors
2200 Ross Avenue
31st Floor Dallas, TX 75201
www.barrowhanley.com

8.26.2025
Follow us:

While credit has long been a core building block for institutional investors, it remains underused in many individual and advisor‑managed portfolios. Overlooking credit means missing opportunities to diversify, manage risk, and enhance return potential. That potential is evidenced by the Barrow Hanley Credit Opportunities Fund, which holds a 5‑star Morningstar Rating for its 3‑year performance in the High Yield Bond category.[1]

We’ve spent decades unlocking value in an underfollowed, multi-trillion-dollar credit market. Our credit platform spans the full spectrum of public and private credit, with expertise in below-investment-grade segments like high yield bonds, leveraged loans, and private credit. These instruments can offer lower volatility than equities while providing a differentiated source of income and total return.

Historically, high yield credit has produced long-term performance within 100 to 200 basis points of the S&P 500®, with roughly half the volatility—driven largely by the steady stream of interest income. That income not only supports competitive long-term returns, but also helps cushion price swings, contributing to a smoother ride for investors.[2] Active management helps credit strategies to adapt across the cycle by adjusting exposures, identifying mispriced risk, and positioning for more consistent returns. Over time, this flexibility has the potential to outperform passive benchmarks and contribute meaningfully to long-term portfolio outcomes.

Rising Interest in Credit

In light of tech sector volatility, persistent inflation, and an uncertain macroeconomic backdrop, more investors are exploring advanced credit strategies. Participation remains highest in familiar assets like U.S. corporate bonds, where retail-sized trades account for approximately 65% of all transactions.[3]

Complex credit markets like high yield, leveraged loans, and private credit were long the territory of institutional investors. Today, these markets are opening up. New platforms and evolving product structures are making it easier for a broader range of investors to participate in areas that were previously off-limits.

Despite this progress, participation remains relatively low. We believe this reflects a perception that these markets are difficult to navigate and a lack of clear guidance on how they fit into portfolio construction.

That's a missed opportunity. Credit assets often exhibit low correlations with equities, a valuable trait during periods of economic uncertainty. When used strategically, they can help diversify risk and enhance portfolio resilience.

To make credit work harder in a portfolio, managers need the ability to shift exposure, evaluate underlying fundamentals, and respond to changing conditions. In a rate-driven and volatile market marked by elevated dispersion and uneven credit quality, that kind of active decision-making can help uncover opportunities that benchmarks may miss.

Seeing Through the Cycle

Our credit analysis is grounded in fundamentals, not driven by market trends or popular narratives. We rely on rigorous, bottom-up research to identify companies with low cash flow volatility, transparent capital structures, and governance that supports long-term resilience. To complement this issuer-level insight, we apply a top-down macro perspective to understand how broader market forces may influence portfolio positioning and risk.

We don't believe that risk is a byproduct. We believe instead that it’s a starting point. We assess how a company might perform under pressure—considering cash flow variability, asset coverage, and downside scenarios across the capital structure. That discipline stays consistent. What changes is how we express risk, adjusting our exposure to different sectors, structures, or credit qualities depending on where we are in the credit cycle. In periods of expansion, we may lean into opportunities with more upside potential. In late‑cycle or stressed environments, we emphasize durability and downside protection—seeking to preserve income while smoothing portfolio volatility relative to equities.

Our credit team speaks with more than 750 company management teams each year. These conversations help us uncover risks and opportunities that may not yet be reflected in market pricing. They also provide context that financial statements alone can’t capture, offering early signals on strategic shifts, capital allocation, and evolving industry dynamics.

Making Credit Count

For more than forty years, we’ve managed credit portfolios for institutions, helping them generate income, diversify risk, and adapt to shifting markets. We bring that same expertise to building portfolios for investors who want income, resilience, and the potential for long‑term growth. The result is a value‑driven credit strategy built to uncover undervalued opportunities across the market. Credit isn’t just a complement to equity—it’s a core building block for portfolios designed to balance reliable income with protection against market shocks and sustainable outcomes. We focus on delivering this combination through disciplined research, selective positioning, and a clear understanding of where value is hiding.

[1] MorningstarRating™ as of June 30, 2025.

[2] Damodaran, Aswath. Historical Returns onStocks, Bonds, and Bills: 1928–2024. New York University Stern School ofBusiness. Accessed July 28, 2025.https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

[3] Financial IndustryRegulatory Authority (FINRA).TRACE Fact Book: Corporate Bond MarketData. Published 2024. Accessed July 28,2025.https://www.finra.org/filing-reporting/trace/trace-fact-book

A longstanding history of competitive returns, a collegial environment, and a bespoke approach to client service yields a principled, proven partner.