Man GLG’s new High Yield Opportunities fund, with its bottom-up fundamental credit selection combined with a top-down thematic investment screening process, covers both the macro and the micro aspect of credit selection.
This may help generate alpha in a yield-starved environment, specifically as longer-term government bond yields in the UK have again fallen in recent months.
This new fund does not simply track a number of indices; so there is scope to deliver above-benchmark returns that may be more easily achieved by investing in a limited mandate of credit instruments, instead of a fund holding significantly more instruments.
The fund focuses on cash-generative companies rather than cyclical business, but searches for attractive valuations.
The selection process may provide reduced longer-term volatility, as well as entering positions that may offer improved growth potential combined with natural yield.
Given the fund’s high-yield focus, I expect volatility to be at least at medium level, which may not suit conservative investors, especially as it invests in below-investment grade instruments.
The fact the fund is currency hedged to sterling should help reduce volatility due to currency movements.
The fund is also able to take a short position in credit instruments, helping to potentially profit from a fall in credit prices with the use of derivatives should the manager forecast a deterioration in credit risk.
This may reduce or increase the fund’s performance depending on the quality of the fund manager’s calls over time. Therefore, investors should consider this fund if they are prepared to risk achieving returns inferior to a relevant high-yield bond index, as well as paying fund costs significantly more than a passive solution delivering a high-yield bond strategy.
The fund was launched on January 17, with a performance to date of approximately 4 per cent as of March 22 2019, which is impressive.
Advisers will find it challenging to advise clients as there is little track record and limited reported assets within the fund.
Notwithstanding, the manager has more than $30bn (£23bn) dollars under management and has been established for more than 20 years, providing confidence for advisers as well as clients.
Ben Sassoon is a chartered financial planner at Drewberry