Fund Review: ‘Truly global fund’ seeks to capitalise on diverse markets and credit cycles
The $17m (£14m) T Rowe Price Global High Income Bond Sicav has been managed by Mike Della Vedova and Mark Vaselkiv since launch in June 2015, with the aim of achieving high income and capital appreciation by investing primarily in global, below-investment-grade corporate debt.
Mr Della Vedova points out the fund integrates fundamental credit research and holistic capital structure considerations with a focus on global diversification, targeting high-yield corporate issuers from North America, Europe and emerging markets. “Our concentrated approach allows for flexibility across the globe as we cast a wider net to incorporate issuers from each relevant area.”
The investment process has not changed over time, although the manager says the fund represents “the natural evolution of T Rowe Price’s core high-yield credit competency and recognises the global growth of the high-yield market that is expected to continue”.
He adds: “Below-investment-grade corporate debt issued outside of North America has grown significantly in the past decade, transforming what had been traditionally a US market. Our recognition of this expansion means the overall opportunity set roughly doubles in size. This truly global high-yield fund utilises tactical regional allocations to potentially capitalise on diverse market environments and credit cycles.”
To be a truly global fund Mr Della Vedova notes that macro factors must be incorporated in the process because credit and business cycles are unique to each country and region.
He explains: “Our sovereign and emerging [market] analysts provide regional context along with the assessment of individual country macro environments. Global and regional themes, divergent economic cycles and geopolitical developments create market dislocations and opportunities that cannot be separated from underlying corporate credit analysis.
"The US Federal Reserve could raise rates for the second time within a year, while the European Central Bank (ECB) remains very much in easing mode through large-scale asset purchases, supporting the credit markets. While it is possible that the ECB will begin tapering in 2017, it is likely to remain accommodative.”
The fund’s Qdh sterling-hedged share class sits at a risk-reward level of four out of seven, with ongoing charges of 0.77 per cent, the key investor information document shows.
Since launch the Qdh share class has delivered 8.9 per cent in sterling terms, outperforming both the BofA Merrill Lynch Global High Yield Hedged Sterling index’s gain of 7.2 per cent and the IA Sterling High Yield sector average of 4.6 per cent, data from FE Analytics shows.
Mr Della Vedova notes: “Our high-conviction concentrated approach and active management has allowed for outperformance relative to our market index, with below-market volatility in the past year within a very dynamic market environment. In the past 12 months our credit selection has enhanced returns as we would expect. Our security selection in the food industry was the top contributor to relative returns.
"Here we like select Latin American protein producers such as Minerva, where top-line and Ebitda [earnings before interest, tax, depreciation and amortisation] growth came in well ahead of estimates. While our overweight to cable operators was a slight drag to the relative performance, credit selection within that sector was a meaningful contributor.”
The manager notes the team has been very active in terms of regional allocations since the inception of the fund because so much has happened. He explains: “Due to its higher concentration in commodity sectors, the US high-yield market faced considerable declines in 2015 until February 2016, when the market seemingly turned overnight and those same issuers have delivered considerable gains.
"Meanwhile, European high yield has outperformed US high yield every annual period since 2012 until last year because that market has less commodity-related exposure. And then emerging markets enjoyed considerable inflows and market gains for much of 2016 based on accommodative central bank actions, signs of economic recovery and promising political developments that contributed to strong investor demand.”
As a result he notes that although the fund’s US allocation was 41 per cent at launch, this represented more than 50 per cent of assets.
