A global high yield bond fund, with a bias to the US market. Bottom-up credit research, with a clear focus upon minimising credit stress-related losses, drives the process. Within its sector, it features in our 'Global High Yield (US Biased), Total Return Focus' category.
The fund's KIID Synthetic Risk and Reward Indicator (SRRI) is 4. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 4 means the fund's historic volatility is between 5% and 10%.
The fund’s risk score is in keeping with the sector. We expect the fund’s future standard deviation to be approximately in keeping with that of global high yield bond indices. Different share classes could have differing SRRI scores.
The fund is managed by Aakash Thombre and John McClain, Global Co-Heads of High Yield and and Leveraged Loan Corporate Credit. The team is well-resourced and incorporates expertise in research, trading and portfolio construction. The managers work collaboratively with their colleagues, drawing ideas from the leveraged credit specialists, as well as taking input more broadly from the investment grade, emerging market debt, securitised credit and equity teams. The Fixed Income Strategy Group, which comprises the most senior members of the Global Fixed Income and Liquidity Solutions team, also provides them with direction, context and oversight.
The primary goal of the approach is to maximise risk-adjusted returns and minimise credit stress-related losses. The team believes that fundamental or technically driven market inefficiencies can be identified through their process of intensive credit analysis. With a deep understanding of sectors and companies, they believe they are well positioned to capitalise upon mispriced situations and avoid damaging defaults.
The fund is invested globally, although the dominant exposure is to North American high yield bond markets. It aims to feature around 250-300 issuers, diversified across sectors. For holders of the sterling share class, all non-sterling currency is hedged back to sterling, with the team typically using derivatives such as foreign exchange forward contracts.
The approach is based upon detailed bottom-up security analysis, combined with a broader assessment of macroeconomic conditions that helps inform company analysis and the geographical, sectoral and rating exposures in the fund. Top-down analysis is provided by the worldwide macroeconomic and strategy resources available to the team inside and outside the firm, and this helps them to formulate the medium and long-term outlook for the sub-investment grade bond markets. Team discussions also incorporate considerations of investor sentiment, technical factors, valuation and liquidity factors influencing the market.
The team undertakes rigorous fundamental analysis, focusing on company specific idiosyncratic factors, as well as trends in supply, demand, national and regional economic data, which helps them frame their outlook for a given company or sector. The internal research process, of which company meetings are an important part, incorporates industry research, an assessment of the business and financial factors affecting a company, and stress-testing. Valuation analysis is informed by cash flow metrics, asset values and market comparables, both public and private.
This framework helps organise investment opportunities into four buckets. ‘Core’ investment opportunities are comprised of companies with solid credit profiles and earnings/operating momentum. ‘Compression’ opportunities represent situations where the operating momentum of the issuer may be temporarily diminished in the context of an overall solid credit profile. ‘Opportunistic’ investments are issuers that have historically carried a below average quality profile but where positive operating and earnings momentum offer the potential for enduring credit profile improvement. Lastly, they identify companies with a below average credit profile and a weak outlook, which are generally ‘Non-investable’, regardless of valuation. Roughly 50-70% of the portfolio is typically made up of Core investments, around 20% in Compression trades, and the balance is in Opportunistic situations.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above.
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