While the manager confirms his preference for UK and Europe against other regions, he adds that the fund is moving away from euros and into US dollars. “We have started to introduce more US dollar [-denominated] high yield to the portfolio and that is something we think will be an ongoing trend for the next few years,” he says. “As a consequence of quantitative easing within Europe, we have seen European high yield continue to outperform, but we think its ability to continue this is reduced as the yield differential is now very high within the US. The yield on offer in Europe is just more than 3 per cent, whereas it is above 6 per cent in the US.”
The reasons for the recent underperformance of the dollar market include the energy sector, the divergence of monetary policy, the strong US dollar and “volatile” fund flows, he points out. But he admits he is becoming “more comfortable” with these concerns, having seen energy prices stabilise and an expected interest rate rise later this year.
“We’ve started to move into the US. It’s around 10 per cent of the portfolio at the moment, but that’s something we are looking to increase,” the manager adds.
Martin Bamford, chartered financial planner and managing director, Informed Choice
This fund has been a consistent top-quartile performer in the past five years, although Chris Higham has only been running it for half that time. It’s a well-diversified portfolio, with around 80-90 underlying assets that give investors a good spread of risk. UK investors will be reassured that 80 per cent of the fund’s assets are priced in sterling or at least hedged back to that currency. The manager has a good deal of flexibility in terms of selecting assets. This fund remains quite small given its recent success and we expect it to grow as more investors gravitate towards the higher-yield end of the credit spectrum.