Optimal Credit Strategy for High-Yield Bonds

John is a fixed income portfolio manager at an investment firm. He is currently considering a credit strategy for the firm's high-yield bond portfolio. John is weighing the benefits of diversifying the portfolio by investing in different sectors versus focusing on concentrated holdings in sectors he believes will outperform the market. Additionally, he is assessing the risk of credit downgrades and defaults within the current economic environment.

As part of his analysis, John evaluates a new high-yield bond offering from a distressed retail company, which has shown signs of recovery. While the potential returns are attractive, he is concerned about the company's ability to generate sustainable cash flows amid changing consumer behavior. Understanding these factors is critical for implementing an effective credit strategy.

Based on John's situation, which approach is most likely to enhance the risk-adjusted return of the high-yield bond portfolio?