Kathryn Glass, co-head of high-yield group at Federated Hermes
Courtesy: Federated Hermes Inc.
Federated Hermes’ Kathryn Glass wasn’t always set on a career in finance. Yet these days she’s co-heading her firm’s high-yield fixed-income group — and trying to navigate a market that some say has gotten too expensive.
Glass, who was promoted to the position in February after 27 years in the business, at first seemed destined for a career in Japanese language and literature.
She received a bachelors of arts degree in the subject from the University of Pittsburgh and spent her junior year abroad in Japan. She then got a masters degree in Japanese literature from Cornell University in upstate New York. It wasn’t until her Ph.D. program that she shifted gears — dropping out and getting an internship at Federated Hermes. It also brought her back home to Pittsburgh, where she grew up.
“I was hired at Federated in our muni bond group and money market group, which was the same group at the time, because they had a lot of exposure to Japanese banks, letters of credit,” said Glass, who minored in math during college. “It was a two-year program, where I could learn finance and they were interested in my language skills.”
She was hooked. Glass then went to the Tepper School of Business at Carnegie Mellon University, also in Pittsburgh. She earned her masters in accounting and finance and, in 1999, returned to Federated Hermes, joining their high-yield group as an analyst.
“The reason I ultimately really got interested in the analyst side of this business is because, yes, you need to do math, but you also need to be able to interact with people, read 10-Ks, read 10-Qs, understand strategy,” Glass said. “The gray parts of this is really where you’re able to shine.”
Together, Glass and co-head Mark Durbiano lead a team of 16 in the high-yield fixed-income group. They manage about $13 billion in U.S. high-yield fixed income strategies as part of Federated’s $98 billion in fixed-income assets as of Dec. 31, 2024. Glass is also a senior portfolio manager.
Finding the right stories
The investment process is reliant on research from its analysts, who have a bottom up approach, looking at company balance sheets rather than macroeconomics, she said. She describes the technique as more akin to small-cap equity analysis than investment-grade corporate analysis.
“High yield, it’s stories. There’s lots of reasons companies are in our market. Our job is to get to know the management teams, understand their priorities, [and] continue to monitor it for the life of the investment,” she said.
“It’s a pretty labor intensive focus to get names in and out of the portfolio,” she added. “We want to ride our winners, but we also want to get away from the losers.”
The approach, as seen in its Institutional High Yield Bond Fund (FIHAX), gets kudos from Morningstar. The mutual fund researcher said the Federated fund “stands out thanks to its long-tenured management team and differentiated investment approach.” FIHAX has a 30-day SEC yield of 5.96% and a 0.75% net expense ratio.
Federated Hermes Institutional High Yield Bond Fund (A shares) in 2025.
Putting her strategy to work
Investing in high yield hasn’t been easy in this market, Glass noted. She’s positioned cautiously right now because spreads — which measure junk bonds’ excess return over risk-free Treasurys — are tight.
“It’s almost a Goldilocks-type scenario where the economy has chugged along quite nicely — but are you getting paid for risk?” she said. “While valuation is a horrible timing tool, it should definitely be a guidepost for you.”
Because the fund is known for being “very pure high yield,” shying away from bank loans and cash as a strategic instrument, she has moved into lower-spread names.
“They’re all still rated in the junk bond market, but the market is pricing them to show that they’re higher quality issuers,” she explained.
Now, she waits for a buying opportunity.
“People need to be aware that we are priced to perfection at this point in time,” Glass said.
“We can bounce along here for a bit longer, but at some point you will have a shock that sends spreads wider,” she added. “Better to be positioned more cautiously and be ready to go back into the market aggressively when that happens.”
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