James Sullivan, head of partnerships at Tyndall, said: “A little like the number 10 role in rugby, high yield bonds do help bridge the gap between the forwards (investment grade bonds) and the backs (equities). However, unlike the necessity of a number 10, high yield bonds are not typically a sub asset class for all seasons given their economic sensitivity. They do not correlate perfectly to equities, of course, but they do carry a degree of sensitivity that undermines the benefit of bond-like diversification. Therefore, when we have allocated to high yield bonds, perhaps except for within the highest risk mandates, we allocate 50 per cent from our equity budget and 50 per cent from our bond budget.”
Darius McDermott, investment adviser to the VT Chelsea Range of multi-manager funds said: “High yield bonds are bonds issued by lower rated companies. Hence they need to pay a higher yield to attract investors. They are a good yielding asset in most market conditions. Unlike government or corporate bonds they are less sensitive to interest rates but more to economic conditions. They are very useful in income portfolios but can also give some capital growth across the cycle. "
he added: "A great fund option in this area is Aegon High Yield Bond fund. This is a high conviction approach from 2 experienced managers. Both managers only do High yield, unlike many others in the space, and they have had very strong performance since they took over the fund and has a current yield of 7.4 per cent.”
Ian Francis is chief investment officer at New City Fund Managers and runs the CQS High Yield fund, he said many older clients whose priority is income have been attracted by the yields offered within the high yield bond market, while much of the negativity associated with the asset class in recent years centred on fears that companies would not be able to refinance debt as it fell due, but that most have refinanced at rates they can manage.
David.Thorpe@ft.com
