Where Morningstar’s 2025 bond manager of the year sees the best opportunities right now
Artisan Partners’ Brian Krug looks for opportunities where others see none. As a portfolio manager on Artisan’s credit team, Krug aims to have a concentrated portfolio that invests selectively across the risk spectrum. That includes assets that may have sound businesses but are unpopular for some reason. “We buy sickly, out-of-favor businesses when they’re good businesses. They are just out of favor because of circumstances,” Krug said in an interview with CNBC. For instance, when the cruise ship companies were hit during the Covid pandemic, he and his team stepped in and provided financing. The strategy has earned Krug kudos from Morningstar, which recently gave him an investing excellence award for 2025 as outstanding fixed income portfolio manager . The financial services firm said Krug “honed an aggressive but effective style for high-yield bond investing” at his previous firm, Waddell & Reed, and has continued that success at Artisan Partners. “He’s surrounded himself with a talented team, and together they’ve tactfully selected corporate bonds and bank loans to build a concentrated, potent portfolio,” Morningstar wrote. “Splicing together his record over his Waddell & Reed and Artisan tenures, Krug stands out as a top high-yield bond investor.” The team, based in Denver and one of 11 autonomous investment groups, includes a chief operating officer, senior analysts, fixed income traders and a data scientist. They use both quantitative methods and qualitative techniques to generate ideas. They’ll screen for yield, performance and relative value to narrow down the investment universe and then identify sector and company dislocations. The funds Krug manages include the Artisan High Income Fund (ARTFX), rated five stars by Morningstar. The fund, which is closed to most new investors, had a 30-day SEC yield of 6.73% , as of June 30, and a 0.94% expense ratio. The majority of holdings are corporate bonds, with some 44% in B-rated assets, 26.5% in BB-rated and 20.3% in CCC and below. Creating opportunity Krug said he doesn’t necessarily consider his investment style “aggressive” and believes his concentrated portfolio is really about having the team’s best ideas drive results — rather than being a diverse offering. It includes both high-yield bonds and loans. Plus, higher-grade bonds are more efficiently priced than lower-grade assets, he said. “When you think about some of the lower grades, you have a lot more inefficiency because some investors will say, ‘Well, I don’t want to invest in that because it’s risky,'” he said. “So that creates opportunity on a very selective basis.” ARTFX YTD mountain Artisan High Income Fund in 2025. Bottom-up research also helps Krug and his team identify specific assets that make sense. In addition, the team gives the investments time to work through any issues. When the cruise lines needed financing in 2020, the timing was horrible because the operators had shut down in the midst of the pandemic, he said. “We went very big into [the] space and provided capital to companies to basically have liquidity, to give themselves time to work through the virus,” Krug said. “We bought when they [were] distressed, and now they’re on a path to investment grade.” The 48-year old said his 25 years in the business have helped shape his strategy. A native of Milwaukee, he attended Miami University in Ohio and graduated in 1999 with a degree in finance. He then wound up at Pacholder Associates, later acquired by JPMorgan, as an analyst for a distressed portfolio. That allowed him to understand business models and study how things go wrong, he said. “The number one thing that I would think I learned is just avoiding mistakes and then selectively finding opportunities in deploying capital when other people panic,” he said. Finding opportunities now These days, Krug sees opportunities in several areas of the fixed-income market. One is insurance brokerages, where the firm has had significant exposure over time, he said. “Insurance brokerage has great credit characteristics [and] predictable revenue streams,” he said. “You’ve got high margins, and that supports strong valuation from an equity basis.” Artisan High Income Fund’s top holding is insurance broker Ardonagh Group, at 4.5% of assets as of June 30. Cruise lines continue to provide incremental value, although the absolute returns won’t be what they were in the past, Krug said. “Companies are going to get upgraded,” he said. “As you get the upgrade to investment grade, you have a new buyer base that comes in and that new buyer base will basically pay much tighter spreads than what a high yield investor would.” Carnival and NCL, or Norwegian Cruise Line Holdings , are both top holdings in ARTFX. Lastly, there are some inefficiencies in the loan market, Krug said. “As the broadly syndicated loan market has increased, it has taken more credit risk than has [been present] in the past,” he said. “If a company has a misstep and they get downgraded, it really creates an opportunity, or even the threat of a downgrade creates an opportunity,” he said. Meanwhile, any potential economic downturn or recession doesn’t scare Krug. In fact, it creates a great buying opportunity, he said. “We, as high-yield investors, are perennially glass-half-empty investors,” he said. “We always think about what can go wrong.” “If dislocation occurs, that provides us more opportunity to create alpha,” Krug added. “You have a little bit of a panic, and through our individual security selection we’ve been able to take advantage of the panic.”
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