As global central banks reconsider monetary easing, the search for yield is more challenging.
By Terry Wood Head of ETF Portfolio Management (EMEA).
Economic and political challenges across major economies
With the UK due to leave the EU on 31 October, the CBI has warned that neither the UK nor the EU is ready for no deal. Europe is already grappling with its own economic and political issues, and further afield, the ongoing US-China trade war is starting to weigh meaningfully on sentiment.
Lower your volatility with higher yield bonds
Central banks have moved back to lowering rates, and although corporate bonds should partially benefit there is the potential for uncertainties to filter into corporate earnings. This impacts both equity and bond prices and in particular, the ability of investment grade bonds to provide a decent yield.
So, it is worthwhile re-assessing the potential reward relative to risk an investor should expect from bonds. Although a cautionary stance should be at the forefront in such unpredictable times, in an environment where recessionary concerns are muted by looser monetary policy, high yield bonds could continue to offer more attractive returns compared to their lower risk investment grade counterparts.
As a substitute risk-on asset class, over the longer term, global high yield bonds have provided equity-like returns with lower volatility than equities, especially when currency hedging is considered.
Past performance is not a guide to future performance.
BMO Global Asset Management manages a range of targeted ETFs, with one product specifically tracking the Bloomberg Barclays Global HY Corp Hedged to GBP Index.
The BMO Bloomberg Barclays Global High Yield (GBP Hedged) UCITS ETF has distributed 4.8% over the last 12 months (to 26 July), significantly more than the global equity benchmark’s dividend yield. As well as providing diversified geographical exposure, currency hedging is included in the OCF of 0.35% p.a. offering one of the most cost-efficient ways to access this asset class.
For more information on BMO Global Asset Management’s range of ETFs, visit our website.
Terry Wood, Head of ETF Portfolio Management (EMEA)
Terry joined the group in August 2007 as a Quantitative Portfolio Manager. Prior to this, Terry worked at Insight Investment as a Quantitative Analyst. Previously, Terry spent nine years at Deutsche Asset Management as a Quantitative Analyst for the Global Equity team. He holds a BA (Hons) in Accounting & Finance from the University of Kent and is a CFA charterholder.
Capital is at risk and investors may not get back the original amount invested.
Shares purchased on the secondary market cannot usually be sold directly back to the Fund. Secondary market investors must buy and sell ETF Shares with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current Net Asset Value per Share when buying ETF Shares and may receive less than the current Net Asset Value per Share when selling them.