When others see trouble, Bryan Krug of Artisan Partners sees opportunity—a mindset that has earned him accolades and, more importantly, impressive returns in the high-yield bond space. As a portfolio manager specializing in credit, Krug’s approach is anything but conventional: he deliberately seeks out “sickly” but fundamentally sound businesses that the market has temporarily shunned. This contrarian strategy, honed over 25 years, is not just about risk-taking; it’s about precision and patience.
Krug’s portfolio is concentrated, focusing on his team’s best ideas rather than spreading bets thin. This means diving deep into distressed or out-of-favor sectors, like he did with the cruise industry during the COVID-19 pandemic. While most investors fled, Krug and his team stepped in to provide crucial financing, helping these companies survive and eventually thrive. Today, cruise lines like Carnival and Norwegian Cruise Line Holdings are on a path toward investment-grade status, a testament to the power of buying at the bottom.
What sets Krug apart is his blend of quantitative rigor and qualitative insight. His team employs data scientists alongside seasoned analysts and traders to screen for yield, performance, and relative value, then zeroes in on sector and company dislocations. This hybrid approach allows them to uncover inefficiencies—especially in lower-grade bonds where fear often leads to mispricing.
For investors, Krug’s strategy offers a vital lesson: higher-grade bonds might seem safer but are often priced efficiently, leaving less room for outsized gains. The real alpha lies in the less-traveled corners of the market where fear and uncertainty create opportunities. For example, Artisan’s High Income Fund (ARTFX), which Krug manages, holds a significant portion (44%) in B-rated assets and nearly 20% in CCC and below—segments typically avoided by conservative investors but ripe for selective investment.
One sector Krug is bullish on right now is insurance brokerages, notably the Ardonagh Group, which benefits from strong credit characteristics and predictable revenue streams. This sector’s high margins and stable cash flow make it an attractive anchor in a high-yield portfolio. Additionally, the loan market is presenting unique opportunities due to increased credit risk and potential downgrades, which can create price dislocations ripe for strategic entry.
A critical insight from Krug’s playbook is the importance of patience and timing. His team doesn’t just buy distressed assets; they give them time to recover. This long-term perspective is crucial in high-yield investing, where panic selling often leads to temporary mispricings.
For advisors and investors, the takeaway is clear: now is the time to embrace selective risk. With economic uncertainties looming, high-yield markets are poised for volatility—and volatility is where opportunity lives. Investors should consider reallocating a portion of their portfolios to high-yield bonds and loans, focusing on managers like Krug who combine deep credit analysis with a contrarian mindset.
Looking ahead, expect more sectors to experience temporary setbacks as the economy navigates inflation pressures and geopolitical tensions. Those equipped with the right expertise and patience can capitalize on these dislocations. As Morningstar’s recent recognition of Krug’s work underscores, aggressive does not mean reckless—it means disciplined, informed, and opportunistic investing.
In sum, the high-yield market is not for the faint of heart, but for those willing to look beyond the headlines and dig into the fundamentals, it offers a compelling avenue for enhanced returns. Bryan Krug’s approach is a masterclass in how to turn market fear into financial opportunity—a strategy investors should study and consider incorporating into their portfolios today.
Source: Where Morningstar’s 2025 bond manager winner sees best opportunity now