A new high-yield bond fund from T. Rowe Price is aiming to capitalise on the global boom in sub-investment credit while retaining a commitment to sustainable investment.
The $1.28 trillion asset manager says its latest offering will provide investors with a “powerful” tool which gives access to its established presence in “all major markets”.
The American investment giant’s sterling-hedged Global High Yield Opportunities Bond Fund is part of an expansion of its UK-based open-ended investment company (OEIC) range.
The portfolio will target the world’s highest-yield market in the US and have half of its focus on Europe and Emerging Markets (EM) - and anticipates attractive returns over the next 12 months.
T. Rowe Price has been investing in high-yield securities since it founded its fixed income division in 1971 and now runs $31.5 billion in the asset class.
The firm’s head of UK and Ireland distribution, Nataline Terry, said: “We’ve built a substantial global presence in the high-yield space in recent decades, with a local presence in all major markets.
“A unique feature of high-yield debt is the yield ‘buffer’ it offers. High coupons should provide consistent and meaningful income, which helps dampen price volatility and has delivered attractive risk-adjusted returns over time.
“This year’s jump in yields has meant this buffer is back again, providing investors with a powerful compounding effect. So we are excited to bring this vehicle and opportunity to UK investors.”
The fund will feature bonds with a credit rating below investment grade (Baa3 or BBB-) and look to take advantage of the higher-risk-generating-higher-return methodology.
It will comply with T. Rowe Price’s Responsible Exclusion List, which aims to exclude investments in sectors or firms that are harmful to ESG principles, and is committed to maintaining at least 10% of its value in sustainable investments.
Lead portfolio manager Michael Della Vedova, who will head up a team of 241 fixed-income experts, said: “Despite elevated volatility in bond markets, high-yield credit still exhibits resilient fundamentals like a near-zero default rate, high recovery rates, declining leverage, and improved liquidity.
“The market also contains some of the highest interest coverage ratios we have seen in more than a decade.
“When the risk-free rate and credit spreads reach current levels, we have historically seen strong one-year forward returns in this asset class. This bodes well for high yield performance in 2023”.
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