Why it’s not just golf where Europe has the edge over the US

Europe narrowly defeated the US in the Ryder Cup in September, picking up the trophy despite a spirited final-day comeback from the Americans.  

But golf isn’t the only area where Europe has the edge over the US – we think it is a better bet for active high-yield bond investors, too.  

At €600bn, the European high-yield bond market is about one-third of the size of its US equivalent and makes up just 20% of the global index. Yet it accounts for about half of our short-dated and all-maturity global high-yield funds, with this larger weighting a common thread in our portfolios over the six years we have managed money at Artemis. So why is this? 

European high yield is less efficient  

The primary reason is that the European high-yield market is less efficient than its US counterpart. Not only is it smaller, it also has a more idiosyncratic group of issuers and fewer structural owners. As such, we see more mispriced securities than in the US – in terms of bonds that are both too cheap and too expensive.  

Given we focus on bottom-up stockpicking to jump on credit inefficiencies, it makes sense for us to allocate more capital to a market where they are more prevalent. 

So why don’t we just ignore the US completely? And why should a client buy our fund rather than an exclusive European high-yield one with the same bottom-up focus? 

The simple answer relates to concentration. 

Not enough bonds to go around  

Taking the example of our short-dated strategy, we believe that 100 securities is a reasonable level to get the ‘free lunch’ of adequate diversification. Most of our peers seem to believe that an efficient number of holdings is around 300 (the average is 334)¹. 

There are only 247 issuers in European high yield that have bonds with a maturity of less than 5.5 years². This probably overstates matters, as a lot of these will be illiquid or will have longer legal final maturities (for example subordinated financials).  

A European short-dated focus strategy has to buy almost 50% of total issuers

Source: Morningstar and ICE BofA indices at 31 August 2025 

But if we take it at face value, it means that any ‘focused’ strategy will need to buy half the issuers in existence if they exclusively focus on European high yield. The average ‘active’ high yield strategy in Europe effectively needs to buy more than the entire market of issuers. 

So – we like European high yield a lot because it is inefficient. But our strategy allows us to focus on finding a small subset of the most attractive bonds within this market, rather than simply buying the whole market (and effectively writing off any ability to select mispriced securities). 

Taking advantage of regional discrepancies  

There is another reason why we don’t focus exclusively on Europe which has nothing to do with its advantages or disadvantages over the US, or any other market for that matter. 

If you focus on a single region, as 90% of high-yield funds do, you are ignoring a peculiar trait in which an international company can issue two bonds with the same maturity and from the same part of the capital structure, but that offer different yields depending upon which country they are issued in. 

Taking advantage of this quirk doesn’t involve taking a view on currencies – we simply hedge this risk. But even after this hedge is applied, it has been possible to earn up to 3 percentage points more over the past few years by lending to certain companies in euros rather than dollars (and vice versa). 

This relationship isn’t consistent as the prices of euro/dollar bonds are volatile. But the small size of our funds and relative freedom compared with more benchmark-driven approaches let us flip between the two whenever relative valuations suit. It also shows that simple top-down allocation between different currencies won’t capture these opportunities – these only come about through bottom-up analysis. 

There are a number of terms that apply to both golf and bonds: hybrid, carry and recovery are commonly used in both the sport and the asset class. Well, here’s another: like a short putt that can be counted without the ball being played, we regard being able to pick up a higher yield with an identical risk as something of a gimme.