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Opportunities with High Yield corporate bonds
Date:
08. July 2024
The last year saw significant increases in interest rates in the bond markets. This year the situation has eased. The corporate bond sector, particularly the high yield segment, offers attractive investment opportunities.
In this guest article, Bernd Ottwein, Portfolio
Manager at Siemens Fonds Invest, explains how regular participation in new issues can generate outperformance and how consistent risk limitation can create an attractive risk-return profile.
Bernd Ottwein: To curb rapidly rising inflation, central banks began aggressively raising interest rates in the summer of 2022. This led to significant losses in the bond markets in the subsequent months. At the same time, the higher market interest rates and higher risk premiums created attractive opportunities in the bond market, especially in the high yield segment.
How has the fund developed since its launch?
Since its launch in February 2023, the Siemens Sustainable High Yield fund has had a successful start. In a market environment characterised by both challenges and opportunities, the fund achieved an attractive performance of +9.6 percent by the end of April (from its launch on 8 February 2023 to 30 April 2024).
Additionally, the fund outperformed its benchmark, the Bloomberg MSCI Euro Corporate High Yield Sustainable BB+ SRI Bond Index, which also delivered a favourable return of +7.7 percent over the same period.
What is the investment strategy that you are following in the fund?
The fund primarily invests in euro-denominated high yield bonds from industrial companies and financial institutions, aiming to offer attractive returns to investors while considering environmental, social and governance (ESG) criteria. Using a long-established management approach, the fund seeks to generate outperformance through a scoring approach and other analyses, regularly participating in attractively priced new issues.
How is risk limited in the fund?
The Siemens Sustainable High Yield fund is broadly diversified, currently holding more than 180 bonds from 140 issuers across 18 industries. We limit default risk by focusing on bonds within the better-rated BB segment of the high yield market and avoiding investments in the C-rated segment. Additionally, up to 30 percent of the fund's exposure can be invested in investment-grade bonds.
What were the drivers behind the fund’s significant outperformance versus the benchmark?
The high level of activity in new issues contributed significantly to the fund’s outperformance. Since the fund's launch, we have subscribed to more than 160 new issues deemed attractive. Typically, we subscribe to bonds issued in the primary market when they can be acquired at a more favourable price than similar secondary market bonds from the same issuer. Furthermore, the fund benefited from the deliberate underweighting of some lower-rated issuers compared to the benchmark.
What is your outlook for the fund following the recent positive development in the bond markets?
In the light of the recent favourable narrowing of credit spreads and the conscious underweighting of lower-rated securities, the fund has adopted a slightly more defensive stance to prepare for potential market downturns. This strategy is intended to provide stability and reliability even if market sentiment weakens. Moreover, the significant increase in new issuance activity, driven by companies seeking to capitalise on the favourable market conditions for lower risk premiums, has opened up further opportunities in new issues.
Many of these issues are aimed at refinancing upcoming bond maturities, placing the fund in an advantageous position to selectively invest in value-enhancing assets. In a market characterised by both uncertainties and opportunities, we aim to continue minimising risks and capitalising on opportunities in the new issue market to achieve sustainable value growth.
Disclaimer Siemens Fonds Invest GmbH:
This presentation contains only general, non-binding information and does therefore not take into account the legal and/or tax situation of individual persons. The tax treatment depends on the personal circumstances of the respective investor and may be subject to future changes. The information contained cannot replace individual, professional legal and/or tax advice.
This presentation has been prepared solely for information purposes, and nothing in this presentation is intended to be investment advice or an offer or a solicitation of an offer, to conclude a contract or to buy or sell any fund shares or products. The funds and products described herein may not be available for purchase in all countries. They may neither be offered or sold in the USA nor to or for the account of US-citizen or US residents or legal entities domiciled in the USA. This presentation and its contents may not be distributed to US-citizens or US residents or legal entities domiciled in the USA.
performance of a fund presented is historical. Past performance is not a reliable indicator of future results. The value of investment can go up as well as down. For further details of the relevant fund, please refer to the current sales prospectus, which is available, along with the annual and semi-annual reports and the key investor information, in German language and free of charge upon request from Siemens Fonds Invest GmbH, Otto-Hahn-Ring 6, 81379 München. These documents are the sole binding basis for the acquisition of the relevant fund.
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