The Liontrust GF High Yield Bond Fund has become notable for one thing: A 10% dividend yield. It is one of the few funds for retail investors across Europe that is currently offering double-digit yields. While the fund focuses on high-yield corporate (junk) bonds, it also invests in investment-grade corporate bonds, government bonds, cash, or assets that can be quickly converted to cash. face. How risky is the fund? The fund holds a number of corporate bonds with an average rating of “BB”, or one grade below investment grade, in its portfolio. “I think it has a very high quality credit rating,” said Donald Phillips, one of the portfolio managers behind the fund. “I think the top 10 stocks reflect the overall risk in the portfolio.” According to Phillips, the fund holds relatively “conservative” assets such as “BB+”-rated bonds issued by the world’s fourth-largest iron ore miner Fortescue Metals, which pay a semi-annual interest of 6.125% . …we felt it was a pretty exciting one-time opportunity. fund manager, Liontrust GF High Yield Bond fund Donald Phillips It also holds debt that is considered relatively riskier by credit rating agencies but one that Phillips believes has been mispriced. They usually pay higher on coupon rates. The fund manager cited bonds issued by German manufacturer CeramTec as an example. The ceramic component maker’s products are used in hip and knee replacement medical devices, which Phillips says is a growing and profitable market due to the aging population trend seen. in Western markets. However, bonds are rated “CCC” – typically issued to companies that are about to default – due to changes to the capital structure of their private equity holders. “Ratings agencies have considered it a CCC, but it fully pays off its leverage and balance sheet because it generates really solid returns [and] Phillips talking about CeramTec. 85% of the income generated by the fund is for underlying long-term holdings, Phillips also citing examples when the timing of his trades had a profitable impact. Swap spreads during a time when the US government is deadlocked on the debt limit means there is an opportunity to capitalize. I think a recession is coming, but not a deep recession. in january [2024] Treasury bills on the spread on the CDX index yielded 10.5% when we made that trade,” said Phillips, referring to the index of bad debt swaps (debt-denominated financial instruments). insurance against default). He predicts credit will decline in the future, admitting before quickly adding that the fund is equipped to handle such a situation due to its resilience, but not a deep recession. a recession like 2008-2009, which is an impending recession when the blunt tool of monetary policy comes into play later this year, perhaps early next year,” he said. value in active management. He emphasized that their fund offers higher returns and lower fees than many similar index ETFs. The fund charges investors a net fee of 0.47% annually, compared to ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF, which are more expensive at 0.49% and offer dividends at 8.16%.” We’re actually cheaper than the ETF. Also, since inception, we’re about 2% ahead of the ETF. And I think that’s a number that will go up,” he added.