Distressed Debt Loses Luster for Funds Seeking Drama-Free Return

In a world brimming with risk takers, some of the market’s biggest gamblers are taking their chips off the table.

While receding fears of a global trade war and recession power rallies in everything from the S&P 500 to developing world currencies, it’s a different story in the distressed debt space. Special situation funds that usually make their money by backing troubled companies through a turnaround are finding so few places to invest, they’re focusing on the debt of healthier companies and are happy to collect the interest.

“You buy a few of these higher-quality names that bring you a ...