Important Note Click to maximise

This document is a financial promotion for The First Sentier High Yield Fixed Income Strategy. This information is for professional clients only in the UK and EEA and elsewhere where lawful. Investing involves certain risks including:

The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares..
Credit risk: the issuers of bonds or similar investments that the Fund buys may get into financial difficulty and may not pay income or repay capital to the Fund when due.
Interest rate risk: bond prices have an inverse relationship with interest rates such that when interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.
Currency hedged share class risk: Hedging transactions are designed to reduce currency risk for investors. There is no guarantee that the hedging will be totally successful or that it can eliminate currency risk entirely.
Derivative risk: derivatives are sensitive to changes in the value of the underlying asset(s) and/or the level of the rate(s) from which they derive their value. A small movement in the value of the assets or rates may result in gains or losses that are greater than the amount the Fund has invested in derivative transactions, which may have a significant impact on the value of the Fund.
Below investment grade risk: below investment grade debt securities are speculative and involve a greater risk of default and price changes than investment grade debt securities. In periods of general economic difficulty, the market prices of these types of securities may decline significantly.

For details of the firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information.

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

Our funds
Fixed Income
High Yield Fixed Income

High Yield Fixed Income

High Yield Fixed Income offers the potential for stable income and total return, while dampening volatility relative to equities and adding absolute yield relative to core bonds. Active management and a focus on downside risk strives to produce stable long-term out-performance. We aim to generate consistent alpha relative to institutional peers, with a longer-term goal of maintaining a top-quartile percentile ranking.

Our Strategy strives to maximize risk-adjusted returns, and seeks superior absolute returns over a market cycle, with lower volatility than the broad market.

First, and foremost, our approach is about risk control. Default risk is the dominant risk factor, and all portfolio investments meet stringent, and quantifiable minimum “margin of safety” requirements. Secondarily, we strive never to buy credit risk at the wrong price.

An optimal, risk-adjusted, portfolio construction combines dynamic fundamental, bottom-up selection, with continuous top-down portfolio risk management.

Margin of Safety

Most importantly, all portfolio investments must meet stringent, and quantifiable minimum requirements; most important among them: Minimum levels of “Asset Coverage” (proprietary estimates of each company’s real world, asset value versus its debt, plus debt-like liabilities). Minimum levels of positive “normalized” free-cash-flow relative to debt.

Relative Value Assessment

The investment process strives never to buy credit risk at the wrong price, utilizing a default-adjusted yield and spread methodology that aims to maximise the default-adjusted yield and spread of a diversified portfolio. Most basically, every portfolio investment must offer an interest rate that overcompensates for the proprietary estimate of its annual default risk.

Contrarian Risk Positioning

Our portfolio risk positions relative to the broad high yield market are typically contrarian, often considerably divergent from peers and largely indifferent to benchmark indexes. We expect to be underweight relative risk into market corrections, or real credit down-cycles. We view the resultant opportunities to rotate from relative safety into higher yielding/higher total return potential investments as a key competitive advantage.

Investment process summary

Minimum yield screen: with "positive event potential" exceptions
Minimum margin-of safety requirements; quantified and stringently applied
Qualitative fundamental corporate assessments to further safeguard against default risk
Default adjusted methodoloy, focused on the spread premium necessary to overcompensate for estimated default risk
Catalysts for total return, expected to result in total returns above a coupon based yield
Portfolio construction, combines bottom-up credit selection with top-down portfolio risk management
Credit risk control: managed by the dynamic, continuous implementation of the disciplined bottom-up investment process (as described above). Primary credit risks include: Default, Negative Event and ESG risks.
Risk monitoring and review: includes daily portfolio reporting and analysis

August 2020

Renewed Growth in High Yield Market

• The US High Yield Fixed Income market has recently increased in size, after 6 years of modest decline, in sharp contrast to the very rapid growth of Leveraged Loans and Private Debt markets

• There has been record new issuance year-to-date (August 2020) of relatively high quality bonds, with many secured bond deals

• Much of the additional High Yield market growth due to significant “fallen angels” (downgraded IG bonds)

• All of these trends have led to a 25-year low in HY credits rated B- or lower

Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, S&P LCD, as of July 31, 2020.
Past performance is not indicative of future performance.

Matt Philo

Senior Portfolio Manager, Co-Head of High Yield

Jason Epstein

Senior Portfolio Manager, Co-Head of High Yield

Linda Grillo

Head High Yield Trader

Jonathan Mann

SENIOR ANALYST

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High Yield Fixed Income