Kames High Yield Bond
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A group of assets with similar properties. For example, while shares will rise or fall in price individually, economic factors can affect all shares similarly. The same economic factors might affect bonds very differently – so shares and bonds are separate asset classes.
The process of deciding which asset classes to invest in. Successful asset allocation is often more important than selecting individual assets (for example deciding whether to invest mainly in shares, rather than which shares to invest in). Since most fund managers are tied to their sector rules, you need to either do your own asset allocation or buy a managed fund.
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A contract representing something of financial value. Shares and bonds are the most common types of securities.
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A share in a company represents part ownership of its assets (e.g. its buildings, intellectual property and so on) and its future income (paid out as dividends). The value of a share depends largely on other investors' expectations of the company's future growth and income.
Companies can issue bonds as a way of raising money. When you buy a bond, the company is agreeing to pay you a fixed income (hence the alternative name 'fixed income securities') for a certain time period, after which your money is repaid. If investors suspect a company may be unable to repay, they will demand a higher income or 'yield' - hence 'high yield bonds'.
In investing, 'risk' can refer to different things, but essentially means the possibility that your objectives won't be met. In this context, risk is a calculation of the 'standard deviation' of returns each month – in otherwords, a measure of how rocky the returns are. The higher the rank, the less risk the fund takes with your money.
This is a way of calculating 'risk adjusted returns' – i.e. how much value the fund is adding above the risk it takes to generate its returns. The higher the number the better.
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Comparing the maximum loss for different managers (or between a manager and their benchmarks, as on these factsheets) over a given period is a good way of seeing who's doing the best job of safeguarding investors' money. Otherwise known as maximum 'drawdown', this is a measure of how much you would lose if you bought an investment at its most expensive and sold at its cheapest. For example if a fund was worth £1 a unit at one point but then fell to 50p – regardless of what happened in the meantime – the fund's loss would be 50%.
updated on 24/05/2013
CHANGE IN PRICE
over 3 years to 24/05/2013
Kames High Yield Bond
TOTAL RETURN over 1 month to 24/05/2013
Kames High Yield Bond Benchmark
Who runs this fund?
The GBP High Yield sector
With a focus on higher-yielding bonds, these funds offer higher income, but also higher risk
How this fund has performed overView full chart tool
Maximum loss on £1000
How Kames High Yield Bond compares to the sector over
How has Kames High Yield Bond performed?
How Kames High Yield Bond compares to the sector over
Sectors: What is this fund investing in? Updated 31-03-2013
Top 10 holdings Updated 31-03-2013
News about: Kames High Yield Bond
- Launch Date 22 Mar 2002
- Fund size (Acc A) £1487.2m
- Base Currency GBX
- ISIN GB0031425233
- Minimum initial investment £500
- Minimum additional investment £100
- Annual management charge1.3%
- Initial charge1.5%
Kames High Yield Bond
by Matthew Goodburn on Mar 27, 2013 at 12:35
Kames High Yield Bond manager Philip Milburn does not expect Cyprus on its own to derail the eurozone but is remaining wary on peripheral sovereign risk.
Speaking on the 22nd March, Milburn told Citywire Global that while Cypriot bank depositors under the guarantee level would be exempt, those over the deposit limit of £100,000 were unsecured lenders and therefore ‘fair game’ if Cypriot banks went bust.
But he believes that the existence of so many overseas investors and in this case predominantly Russians, will be of some help to the Cypriot government.
‘Overseas investors give domestic governments a way of externalising part of the cost of any bailout, he said.
Wary of CCC bond risk
But Milburn remains cautious overall on the eurozone adding: ‘[ECB chief] Draghi may have solved liquidity problems but fundamental issues over solvency remain'
He thinks high yield bonds are still offering fair value but accepts that yields are ‘pretty low’ and the fund remains in capital preservation mode.
He is keeping his allocation to CCC–rated bonds down at just 5% of the fund as he believes the macro backdrop does not justify a more punchy weighting.
The fund also has very little in peripheral Europe with around 2% in Italy through bottle top business Guala Closures and a further 0.5% in Irish packaging firm Ardagh, but he points out that the latter has just 0.5% of its operations in Ireland.
Milburn told Citywire Global: ‘This is not a time to be taking on extra credit risk and I don’t think you are getting compensated for generic triple C risk.
‘Default rates increase exponentially when you go down the ratings bands and although default rates are likely to stay low by historic standards they will not be zero. The mark- to –market volatility of CCC rated credit is significantly larger than in better rated bonds.’
Milburn added that if the lower rated segments of the market rallied he and co- manager Melanie Mitchell would reduce risk even further.
He is happy not to chase the highest yielding CCC-rated bond, arguing that he would rather ‘sacrifice a little upside to avoid a more serious downside’ if the market does turn.
But he added: ‘If there is a market sell-off we will look to tactically increase the fund’s risk from its defensive base. We took our foot off the gas a little early but are trying to manage risk through the market cycle.’
With the fund predominantly in BB and B rated companies, Milburn continues to be heavily underweight banks, which make up just over 4% of the portfolio, while just under 60% is in industrials.
Around one quarter of the fund is invested in companies in the TMT sector with the risk spread across a wide range of countries.
Germany’s Unity Media is the largest holding while Milburn also has stakes in a Swedish cable firm, as well as US fixed line operator Windstream and the country’s third biggest mobile operator Sprint.
The fund also has holdings in US satellite provider Intelsat and US cable TV giant Dish, as Israel’s Hot Telecom.
‘We like the recurring revenues and the strong subscriber base [these companies] have.'
Milburn has recently been increasing exposure to utilities firms which he describes as ‘dull but offering steady returns.’
Debt in transmission masts business Arquiva has been added, along with a bond in water utility Kelda.
‘We are happy to move down the capital structure in utilities because we get steady if dull returns. Kelda is trading at around 5.5%.’
The fund has seen net inflows of around £800 (€943) million over the past year and Milburn revealed that the strategy could be workable up to a limit of £5 billion.
‘That would be £2 billion for the UK fund, £2 billion for the Dublin fund and £1 billion for segregated mandates.'
Upping dollar exposure
Milburn is encouraged by the relatively stronger performance of the US housing market over the past year and has been upping exposure to the dollar.
After hedges, the fund has 55% of its assets exposed to the US dollar and around 20% exposed to the euro.
Kames announced on 25th March that it was launching a Singapore share class for the fund.
Over the five years to the end of February, the fund has returned 77.3% against the 91.9% posted by the BofA Merrill Lynch Eur Currency HY Const benchmark.
Citywire Selection Verdict: This fund positions itself very much at the defensive end of the high yield bond market, investing in the quality end of the spectrum. Returns have been impressive in recent years as the market has boomed, while not keeping pace with the index it has remained competitive with its peers and long-term Philip Milburn is still the best high yield manager available in the UK. The manager feels the good times are at an end for high yield, but isn’t overly concerned about the downside, believing instead that gains will be moderate for the coming years. The fund can still serve as a good diversifier.
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