David Roberts

Opportunity knocks in high yield

David Roberts

Since we launched our Liontrust Global Fixed Income funds earlier this year, we have been consistent with the message that risk is overpriced and we would only buy certain assets when value came back.

With high yield for example, we have told interested clients that they would get a better entry point and for us, that happened last week, as risk assets continued to suffer and many investors talked of panic selling at lowered prices.

Our recent caution on high yield is clear from a fairly modest position in the Strategic Bond Funds, around 10% since launch, with valuation the main sticking point. This stretched to our Global High Yield Fund, which launched in June, where we have been happy to talk about our process but appreciated that in terms of assets under management growth, it is one for the future.

Based on our experience of US high yield, we believe a 7% yield is a great long-term investment, offering adequate compensation for default rates and increased volatility. As the market moved back to that level last week, we upped exposure in our Strategic Funds to 30%.


Barclays US Corporate High Yield Index 

Source: Bloomberg, as at 29.11.18. Chart shows yield in % and is on a yield to worst basis.


Recent comments from the US Federal Reserve – with chair Jerome Powell seeming to soften on further rate rises are supportive in the short term for risk and positive for our high yield purchases. Euphoria may not last however so we are wary about calling the bottom. What we can say is that for the first time in years (since at least mid-2016, when this debt was last at the 7% yield level), we can look clients in the eye and feel confident on high yield.

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Key Risks 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Global Fixed Income team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. The Funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility.


The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing. 

Friday, November 30, 2018, 2:55 PM