| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 7.36% | 2.19% | 1.5% |
Franklin High Income Fund posted a 2.19% return in Q2 2026, benefiting from a ratings-quality tilt that favored Ca and B rated bonds and strategic industry allocations including overweights to finance and underweights to media cable and supermarkets. The US high-yield market delivered solid returns throughout the quarter as investors remained positive on active capital markets and progress toward resolving the Middle East conflict, despite hawkish Federal Reserve commentary. The US high-yield default rate increased modestly to 2.67% but remains below long-term averages, supported by wide open capital markets that generated $2.3 billion in fund inflows during June. Corporate fundamentals have remained resilient through the first half of 2026, and the fund expects these trends to persist with potential volatility from policy implementation and geopolitical tensions. Spreads remain rich historically but appropriate given the low default environment. The fund continues focusing on balance sheet health, free cash flow generation, and credit resiliency while maintaining caution on deeply distressed names. Yields and sub-par dollar prices remain attractive, though spreads are fair but not compelling.
The fund maintains a constructive view on high-yield bonds supported by resilient corporate fundamentals, active capital markets, and below-average default rates, while acknowledging that spreads are fair but not compelling and remaining cautious on deeply distressed credits amid potential policy and geopolitical volatility.
The fund expects corporate fundamentals to remain resilient and technicals in the high-yield market to stay supportive, though with potential bouts of volatility surrounding policy implementation and geopolitical tensions. Spreads remain rich historically but are appropriate given the low default environment supported by wide open capital markets. The fund believes yields and sub-par dollar prices remain attractive, while spreads are fair but not compelling. The Fed is expected to remain data dependent, and the fund will continue focusing on fundamentals, balance sheets, and free cash flow while maintaining caution on deeply distressed credits.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jun 30 2026 | 2026 Q2 | - | Capital markets, credit, Defaults, high yield, inflation, rates, Spreads | - | Franklin High Income Fund delivered 2.19% in Q2 2026 as resilient corporate fundamentals and active capital markets supported high-yield bonds despite hawkish Fed commentary. Default rates remain below historical averages at 2.67%, while fund inflows totaled $2.3 billion in June. The fund maintains a constructive outlook with ratings-quality positioning favoring Ca and B bonds, though spreads are fair but not compelling and caution on deeply distressed credits persists. |
| May 14 2026 | 2026 Q1 | - | credit, energy, fixed income, Geopolitical, high yield, rates | - | Franklin High Income Fund declined 0.68% in Q1 2026 amid Middle East war tensions that drove oil prices higher and created stagflationary pressures. Despite industry allocation headwinds, the fund benefited from quality exposure and energy sector selection. Managers view current yields as attractive in a resilient fundamental environment with low defaults, though spreads remain only fair. |
| Nov 5 2025 | 2025 Q3 | - | Automotive, credit, energy, Fed Cuts, high yield, Spreads | - | Franklin High Income Fund remains constructive on high-yield credit despite tight valuations. Strong energy and automotive selection drove Q3 performance while Fed cuts and trade progress supported markets. Spreads near historic lows limit upside potential, but robust fundamentals and low default expectations should support coupon carry returns going forward. |
| Aug 4 2025 | 2025 Q2 | - | credit, Defaults, fixed income, high yield, policy, Spreads, tariffs | - | Franklin High Income Fund remains constructive on high-yield bonds despite Q2 policy volatility from tariff announcements. Strong security selection and credit quality focus drive performance while supportive fundamentals including low default expectations, strong balance sheets, and favorable technicals underpin the outlook. The manager maintains disciplined positioning, viewing policy risks as moderate over the longer term. |
| Jun 30 2024 | 2024 Q2 | CCL, THC, VST | Corporate Bonds, credit, fixed income, high yield | - | Franklin High Income Fund invests in non-investment grade corporate bonds to generate high current income. The diversified portfolio spans healthcare, energy, and industrial sectors with top holdings including Mauser Packaging, Carnival, and Tenet Healthcare. The strategy carries elevated credit and interest rate risk typical of high-yield bond investing. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
Capital MarketsThe fund highlights active capital markets throughout Q2 2026, with monthly new issuance continuing its trend of strong performance. High-yield funds reported monthly inflows of $2.3 billion in June, continuing positive trends from April and May. Wide open capital markets have supported a low default environment. |
Issuance Inflows Technicals |
Credit StressThe US high-yield default rate (including distressed exchanges) increased somewhat during the period but remains below long-term averages, ending June at 2.67%. The fund remains cautious on deeply distressed names and continues to focus on balance sheet health and credit resiliency to slower economic growth. |
Defaults Distressed Balance Sheets | |
RatesThe US Federal Reserve kept the fed funds rate unchanged over the quarter at 3.50 to 3.75%, although its tone turned more hawkish at its June meeting. The Fed has held rates steady thus far this year, and the fund expects them to remain data dependent in their approach moving forward. |
Fed Policy Hawkish | |
InflationInflation rates were mostly higher during the quarter, partly as the effects of higher energy prices related to the war fed into the data. Risks to the fund's outlook include higher-than-expected inflation and policy missteps. |
Energy Prices Policy Risk | |
| 2026 Q1 |
Credit StressThe fund discusses the US high-yield default rate increasing marginally in March to 2.07%, though remaining below long-term averages. They remain cautious on deeply distressed names and focus on the resiliency of credits to slower economic growth. |
Default Rate Distressed Credit Quality Balance Sheets |
EnergyOil prices surged during the quarter due to Middle East war tensions, creating stagflationary pressures. The fund's overweighted allocation to energy helped performance, and security selection in the energy sector contributed positively to returns. |
Oil Prices Energy Sector Middle East Geopolitical | |
RatesThe US Federal Reserve remained on hold throughout the quarter, with the 10-year Treasury yield rising 15 basis points to 4.32%. The fund expects the Fed to remain data dependent moving forward and believes current yields remain attractive. |
Federal Reserve Interest Rates Treasury Yields Monetary Policy | |
| 2025 Q3 |
CreditThe fund focuses on high-yield corporate credit with constructive outlook despite tight valuations. HY spreads have ground steadily tighter from June into September with robust demand and moderate net supply. Credit fundamentals remain generally supportive despite employment concerns. |
High Yield Corporate Credit Spreads Fundamentals Defaults |
EnergySecurity selection in the energy sector was a key contributor to fund performance during the quarter. The fund maintains exposure to energy-related issues as part of its high-yield corporate credit strategy. |
Energy Security Selection Performance Sector Exposure | |
| 2025 Q2 |
Credit StressThe fund discusses default probabilities and credit conditions extensively. While defaults are expected to remain low given resilient economy and strong HY balance sheets, economic risk has increased amid policy developments with modestly higher default probabilities. The manager emphasizes the historically high-quality skew of credits and increasing secured debt in the index as supportive factors. |
Default Credit Spreads Recovery Balance Sheets |
Trade PolicyTrump's Liberation Day tariff announcements caused significant market volatility during April, with fears of growth drops and inflationary pressures. A subsequent 90-day pause for most increased levies and passage of the One Big Beautiful Bill spending package helped reduce market uncertainties. The manager views policy-related volatility as presenting only moderate incremental risk over the longer term. |
Tariffs Policy Inflation Growth Volatility |
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