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Can avoiding the riskiest high-yield bonds actually hurt investment returns? While default risk increases sharply as credit quality declines, investors who completely exclude CCC-rated bonds may also miss opportunities to enhance performance. 

Analysing 200 European high-yield bond funds from 2015 through mid-2026, Morningstar Manager Research finds that moderate exposure to lower-quality credit often produced stronger results than either complete avoidance or heavy allocations. The study also challenges common assumptions about default avoidance and portfolio performance.

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