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Investing in High Yield Bonds

We offer a range of high yield strategies investing within and across regions, sectors and maturities.

What is high yield investing?

External ratings agencies assign credit ratings to companies and governments issuing bonds based on an assessment of their credit-worthiness. This rating can help to indicate the issuers likely ability to pay interest and principal as scheduled.

A high credit rating (above BBB or Bba for Standard & Poor’s and Moody’s, respectively) is considered ‘investment grade’ while a low credit rating is considered ‘high yield’ (sometimes called ‘sub-investment grade’ or ‘junk bonds’). High yield bonds are more volatile with higher default risk among underlying issuers versus investment grade bonds.  Issuers with low credit ratings need to pay higher interest as incentive to purchase their bonds. As with most investments, higher potential risks demand higher potential rewards to compensate.

The high yield bond market was born in the US and that remains the largest and most liquid market. However, today there is a global high yield market offering potential benefits such as the diversification of Europe or the stronger growth potential of emerging markets.

Why high yield bonds?

High yield bonds offer a number of potential benefits, alongside some specific risks such as higher volatility and higher default rates. In the current environment of persistently low interest rates, bond investors are finding attractive yield difficult to come by. For those in a position to take on higher levels of credit risk, high yield bonds may provide a significant yield enhancement to a well-diversified portfolio.

In addition to significantly higher income than investment grade bonds, high yield often behaves differently to other areas of the fixed income universe so can provide important diversification to a broader fixed income portfolio.

Like equities, high yield bond prices can increase as a result of improved performance of the issuing company or a wider economic upturn. However, the typically higher income component of high yield bonds means that they are generally less volatile than equities.

High yield bonds are typically issued with shorter maturities than many investment grade bonds (generally less than 10 years) and therefore tend to have relatively lower duration. This means a high yield strategy may be less exposed to interest rate risk than most investment grade strategies.

Our high yield strategy

Our experienced, dedicated high yield teams employ a consistent investment process which has been tested over a range of market cycles and conditions. This process is centred on the philosophy that the key to superior long-term potential returns in the fixed income market is compounding current income and seeking to avoid principal loss through fundamental credit analysis and macroeconomic research.

Our robust bottom-up credit research process focuses on identifying companies with improving credit trends, while the top-down component seeks to identify risks and opportunities associated with the overall economy and market. In this way we aim to minimise default risk and manage volatility through active management, while pursuing high yielding opportunities and potentially generating capital growth.

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Investment strategies

Fixed Income

We cover a broad spectrum of fixed income strategies to help investors build diverse portfolios that can be more resilient to economic and market shifts.

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Risks

No assurance can be given that our investment strategies will be successful. Investors can lose some or all of their capital invested. Our high yield strategies are subject to risks including, but not limited to:  liquidity risk, credit risk, counterparty risk and the impact of any techniques such as derivatives. The use of such strategies may also involve leverage, which may increase the effect of market movements and may result in significant risk of losses.

    Disclaimer

    This marketing communication does not constitute on the part of AXA Investment Managers a solicitation or investment, legal or tax advice. This material does not contain sufficient information to support an investment decision.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.