M&G Global High Yield Bond research update

Richard Troue | Wed 11 March 2015

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The M&G Global High Yield Bond Fund invests in bonds across the globe with the aim of generating a high income. It also seeks to grow both the income and capital over the long term. Fixed interest investments have generally performed well over the past couple of years, confounding the expectations of many investors. Stefan Isaacs and James Tomlins, the fund's managers, are still finding plenty of opportunities and believe 2015 could experience further strong performance.

The managers cite strong demand from investors for income-producing assets in a low interest rate environment as a key reason for their positivity. They also note companies are still being conservatively managed following the financial crisis, and are maintaining modest and manageable levels of debt on their balance sheets. This should keep default rates low, in their view. They believe 2015 could be a good year for performance.

Presently, Stefan Isaacs and James Tomlins are keeping the portfolio well-diversified geographically, with investments spread across the UK, US and Europe. The US represents the largest country weighting and while it is an underweight position relative to the global high yield bond index, exposure has been increasing in recent months.

The managers retain a preference for what they perceive to be high-quality businesses. This includes those with strong cash flows which have tended to be relatively consistent and not subject to the vagaries of the economic cycle. This includes businesses in the telecommunications and media industries, as well as companies such as Reynolds Group, a leading global manufacturer and supplier of consumer beverage and foodservice packaging products.

An important development for the fund recently has been the decision by the manager to increase exposure to the energy sector. Following a spell of poor performance, driven mainly by falling oil prices, the managers have taken the opportunity to invest in bonds issued by shale oil and gas companies at attractive prices. They have taken a selective approach and only invested in those which they believe could perform even in a prolonged period of low oil prices.

The poor performance of the energy sector over the past few months has caused some volatility across the higher-risk global high yield bond market, particularly in the US where bonds issued by energy companies are a big part of the market. The fund fared relatively well during this period as it had less exposure to the energy sector and more exposure to Europe, which performed comparatively well. Having taken advantage of the recent volatility to add exposure to the US and bonds issued by energy companies, the managers believe the fund is well-placed to outperform should their views prove correct.

Our view on this fund

This fund has performed reasonably well over the past five years, growing by 38.4% compared with 35.9% for the average fund in the IA £ High Yield Bond Sector*. Please remember past performance is not a guide to the future.

Performance of the M&G Global High Yield Bond over the past five years

Past performance is not a guide to the future. Source: Lipper IM* to 02/03/2015

We hold the well-resourced fixed-interest team at M&G in high regard and we believe Stefan Isaacs and James Tomlins have the potential to do a respectable job for investors over the long term. Stefan Isaacs has managed this fund since October 2010, while James Tomlins became co-manager in January 2014. We would like to see them build a longer track record before considering the fund for inclusion on the Wealth 150 of our favourite funds across the major sectors.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.