Fixed Income  

BlackRock moves into sub-investment grade bonds

BlackRock is now actively marketing its BGF European High Yield Bond Fund in the UK. The fund is intended to appeal to those wishing to participate in the underlying market, and is likely to be considered less sensitive to interest rate rises than other fixed-interest funds.

A sub-fund of a Luxembourg SICAV (investment company with variable capital) launched on 23 July, the fund invests in non-investment grade (BBB-) bonds issued by companies based in Europe. Benchmark is the Barclays Pan-European High Yield 3 per cent Issuer Constrained Index. While its base currency is the euro, it is available in sterling.

The fund is lead managed by Michael Phelps, head of European Fundamental Credit, and co-managed by Jose Aguilar, senior portfolio manager in European Fundamental Credit.

BlackRock said the portfolio is to hold a minimum of 70 per cent in sub-investment grade bonds of European-based companies diversified by sector and geography.

The fund carries an annual management fee of 1.25 per cent, and is subject to a 5 per cent initial charge and a 1.57 per cent ongoing charge.



Fund manager Michael Phelps, a managing director at BlackRock, commented: “The world’s major central banks are following very different policy paths, and despite some recent – largely localised – yield spikes, yields remain close to historically low levels, forcing income-hungry investors to look beyond traditional sources of fixed income such as investment grade and sovereign bond markets. Following a period of rapid growth and increasing maturity, European high yield is increasingly viewed as an attractive alternative.

“Furthermore, a resurging European economy is supporting credit quality and creating a flow of compelling high-yield opportunities, while default rates have been trending lower and are expected to remain low.”


Paul Lindfield, director of wealth management at Manchester-based advisory firm Sedulo Wealth Management said: “The manager also looks after the BlackRock Global High Yield Bond Fund, which is a good performer, and that provides a bit of reassurance.

“However, from my point of view, there is not enough of a track record. I would want at least three years. Also there is little to compare it with directly. There is the iShares European High Yield Corporate Bond ETF – an index fund – but that has a lot in financials and more than 20 per cent of the portfolio is in Italy. Now, there is still the danger of Greece imploding, which would have a knock-on effect on European financials. But Mr Phelps’ global bond fund has 60 per cent in the US and only 14 per cent in Europe, which shows how limited a field it is. I personally would not go there.”


For D class shares there is an initial 5 per cent charge, followed by a 0.65 per cent annual charge.

There is an ongoing charge of 0.97 per cent.


With a rise in interest rates being viewed as inevitable, the likely timing of the event keeps being pushed ever forward – most recently by the negative signs emanating from China. So, European high-yield bonds may not ‘benefit’ that quickly. The underlying issuer of such bonds is paying a high yield because of the risk of default. However, as Europe is seen as being ‘in recovery’, that risk may be declining in comparison with the recent past.