Discover the benefits of high yield bonds in your fixed income strategy, such as potentially higher returns and a typically low correlation with investment grade bonds. High yield bonds are one of our core expertise and we manage $8bn+ in high yield bonds for investors globally.
In High Yield assets managed in globally
Fixed Income team members globally
Our team have a 30-year history of investing in high yield bond markets.
Our capabilities allow us to seek attractive income from a broad range of higher yielding bonds from across the globe to help you meet your investment goals. This may include corporate high yield bonds or subordinated debt securities. Our approach is centred on the belief that fundamental research, both top-down and bottom-up, is the best way to determine future returns and we take a suitable amount of credit risk across different market environments.
Fund manager, Rhys Davies, explores why his fund's exposure to B and lower-rated bonds is at an historic low, citing good yields in higher rated bonds and the risks of lower credit quality bonds.
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Understanding the value of high-yield bonds
Rhys Davies explains why the world's bond markets, significantly larger than equities, are becoming exciting again. He explores the case for high-yield bonds in a falling interest rate environment.
High yield bonds have a higher credit risk than investment grade bonds because the issuers are considered to have a higher chance of defaulting, or not being able to meet their contracted obligations. For this reason, high yield bonds tend to offer higher yields, to compensate for the higher risk.
Credit risk is the risk that a debtor fails to meet a contracted obligation – either the payment of a coupon or the repayment of principal.
Bonds are rated according to their risk of default by independent credit rating agencies, such as Moody's, Standard & Poor's and Fitch. Bonds with credit ratings below BBB are generally considered to be high yield bonds. Bonds with lower ratings have higher risks associated with them that investors should consider.
Investment grade bonds are typically favoured when economic conditions are declining. However, when there is optimism regarding the economy, demand for high yield bonds usually increases. Amid stronger global growth, higher yielding bonds have generally outperformed lower yielding ones.
Historically, high yield bonds have been more volatile with higher default risk among underlying issuers versus investment grade bonds. The volatility of the high yield bond market is typically similar to the volatility of the stock market, unlike the investment grade bond market, which typically has much lower volatility.
Investments in high yield strategies can be made through actively managed mutual funds, including investment trusts, or exchange traded funds (ETFs). Invesco offers a broad range of actively managed fixed income funds and fixed income ETFs.
Fundamental research involves analysing data which is expected to impact the price or perceived value of a stock. Some stock fundamentals include the profitability of a business, the cash flow, return on assets, and the level of indebtedness of a company.
The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.
Invesco High Yield Fund (UK) and Invesco Monthly Income Plus Fund (UK)
The Fund is theme-based or invests in a specific sector or a small number of sectors and/or industries. Investors should be prepared to accept a higher degree of risk than for a Fund that is more widely diversified across different sectors/industries.
The debt securities that the Fund invests in may not always make interest and other payments and nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity, may mean that the Fund may not be able to buy or sell debt securities at their true value. These risks increase where the Fund invests in high yield, or lower credit quality, bonds.
The Fund has the ability to make use of financial derivatives (complex instruments) which may result in the Fund being leveraged and can result in large fluctuations in the value of the Fund. Leverage on certain types of transactions including derivatives may impair the Fund’s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the Fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the Fund being exposed to a greater loss than the initial investment.
As one of the key objectives of the Fund is to provide income, the ongoing charge is taken from capital rather than income. This can erode capital and reduce the potential for capital growth.
The Fund may invest in contingent convertible bonds which may result in significant risk of capital loss based on certain trigger events.
The Fund’s performance may be adversely affected by variations in interest rates.
The Fund is invested in perpetual bonds (bonds without a maturity date) which may be exposed to additional liquidity risk in certain market conditions, and in particular, stressed market environments. This would have a negative impact on the value of these investments which in turn, would have a negative impact on the Fund’s performance.
Invesco Monthly Income Plus Fund (UK) only
As the Fund has wide discretion to dynamically allocate across the debt securities spectrum and between that asset class and shares of companies, the risks relevant to the Fund will fluctuate over time, which may result in periodic changes to the Fund’s risk profile.
Invesco Bond Income Plus Limited
The portfolio has a significant proportion of high-yielding bonds, which are of lower credit quality and may result in large fluctuations in the NAV of the product.
The product may invest in contingent convertible bonds which may result in significant risk of capital loss based on certain trigger events.
The use of borrowings may increase the volatility of the NAV and may reduce returns when asset values fall.
The product uses derivatives for efficient portfolio management which may result in increased volatility in the NAV.
Data is as at 30/08/2024 and sourced from Invesco unless otherwise stated.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change.
For the most up to date information on our ICVC funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the financial reports and the Prospectus, which are available using the contact details shown.
For more information on our investment trust, please refer to the relevant Key Information Document (KID), Alternative Investment Fund Managers Directive document (AIFMD), and the latest Annual or Half-Yearly Financial Reports. This information is available using the contact details shown.
EMEA 3845126
