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Aviva Investors High Yield Bond

Elite Rated by FundCalibre

This fund predominantly invests in UK and European bonds, but it can also invest further afield. The team pursues total return rather than simply targeting the highest yield. A minimum of 80% of the portfolio must be invested in high yield bonds, while the remaining 20% can be allocated between investment grade bonds and cash. With a target of 80-100 holdings in the portfolio at any one time, diversification is a key attribute, and holdings are not changed very often.

Company Description

Founded in 1971 and wholly owned by insurer Aviva Plc, Aviva Investors is a global fund manager with offices in 15 countries across the UK, Europe, North America and Asia. They have a range of customers, from private investors to large corporate and institutional investors, and offer products within real estate, fixed income, equity, multi-asset and alternative investments. Aviva were awarded the Elite Provider for Bonds Rating in 2015.

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Fund Manager

Chris Higham, head of Credit Multi-Strategy Fixed Income, has managed this fund since November 2012, having joined Aviva Investors in 2007. His investment career started as a credit analyst with Morley Fund Management in 1999, after which he moved to Old Mutual Global Investors to work within fixed income fund management. Chris is a CFA charterholder and studied Economics at Durham University.

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The next decade will see significant growth in the high yield bond market. As opportunities increase, a healthy dose of scepticism will be required to achieve our objective of avoiding losers while generating income.

Chris Higham - Fund Manager

The Investment Process

The process starts with two scorecards. In the first scorecard, the team deduce where to explore based on what economic growth is expected across various regions. In the second, the team try to establish the best sectors in which to invest within the region(s) identified. This results in a matrix which shows the optimal region-bond sector combination.

The team then look for bonds that they believe are underpriced by the market. They try to identify strong, non-cyclical businesses which possess the ability to weather tough market conditions. They particularly like those companies with debt that other managers deem ‘too high’ in which to invest, but show the ability to generate cash to pay down the debt, for instance through high profit margins on goods/services sold.

Risk

Portfolio cash levels are fairly flexible, which offers Chris the chance to sell or avoid investments during testing markets. He prefers to avoid losers rather than pick winners, which provides protection for the fund in volatile markets, as does the high level of diversification within the portfolio. The vast proportion of the fund is invested in high yield bonds, which do carry more risk of default than other bonds, although the extensive stock selection process ensures due diligence is performed when investing, making manager skill key to the fund performance.

Our Opinion

This fund speaks to the income-hungry investor. Whilst high yield bonds carry more risk of default than higher quality bonds, the fund has not experienced a single default over the past three years, which is a testament to Chris’ stock picking skill and focus on management teams which are able and incentivised to strengthen their companies’ balance sheets, therefore reducing the risk of default. Aviva’s risk management software adds to our confidence in the fund’s ability to access this higher-risk end of the bond market in a controlled fashion. We believe this is a core holding within a diversified, income-generating portfolio.

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©2014 FundCalibre Limited. All Rights Reserved. The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not ,guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund or of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating.