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Bonds
A consistent source of high income in today’s low-yielding world
Rob Neithart
Fixed Income Portfolio Manager
KEY TAKEAWAYS
  • The GHIO strategy has a long track record of high income: an annual average of 7.4% over the last 10 years.1 
  • The strategy’s bottom-up credit selection prioritises highincome generation, which drives total return. 
  • We invest broadly across higher-yielding sectors that have different return drivers throughout the credit cycle. This maximises the investment opportunity set and allows for a more holistic approach to risk management.
     

How did the Global High Income Opportunity (GHIO) strategy come about? 


Capital Group created the GHIO strategy more than 20 years ago. In the mid1990s, we observed that our high-yield and emerging market (EM) teams were often identifying investment opportunities that were similar in terms of risk profile, cyclicality, capital structure and required in-depth research. 


But these opportunities were in very different silos across the global fixedincome universe. We decided that a strategy was needed that could offer all of these ideas to our clients in a holistic package.


That was the start of the GHIO strategy. Since then, we’ve seen an enormous evolution in our investment universe. We’ve had the development of the EM corporate-bond market, to the extent that the market cap of the hard-currency EM credit market is now bigger than the US high-yield corporate bond market. Local-currency issuance has increased enormously too. 


So this is a very large, diverse universe of opportunities. It offers high yields but requires careful work to analyse and integrate the risks into a complete portfolio.


The GHIO strategy has diverse components: high-yield corporate, hard-currency EM debt, local-currency EM debt, and – more recently – hard-currency EM corporate. All of these asset classes have proved relatively rewarding over time.


But the key factor here is that there’s tremendous divergence in the returns that each asset class delivers in any given year. So any approach that keeps these assets in silos must rest on the assumption that the managers are highly skilled in moving between those silos. 


We prefer to let our research drive us towards the best ideas and to have a structure that allows us to move freely across the investment universe. And we can demonstrate the effectiveness of this approach. Over the lifetime of the GHIO strategy, our bottom-up research, flexibility and asset-allocation ability have delivered a better return than any of the individual components upon which the strategy is built. 


 


How does the team work together on the strategy?


I am the principal investment officer (PIO) for GHIO, which I co-manage with David Daigle. We work closely with dedicated portfolio strategists, and risk and quantitative specialists. 


We all get together at least once a month and drill very deeply into the portfolio. We focus on portfolio-level risk, on the convictions being expressed and on ensuring that those convictions are consistent with what we’re hearing from the analysts who feed credit ideas into our investment process. The fact that our analysts are investors too helps with this process as they have individual track records and they fully understand how to implement investment ideas.


 


How do you and David interact with the analysts? 


We have a whole ecosystem of weekly credit discussions that are dedicated to the EM fixed income universe, both sovereign and corporate. We also have another ecosystem dedicated to the high-yield corporate universe. David and I are active in both of these weekly calls and discussions – typically seven or eight a week, with a focus on individual credit ideas.


After analysts submit their ideas, we discuss them and push back if there are contrary opinions. Then we decide whether to take action or not, or to give the idea some more time and perhaps some additional research.


 



Past results are not a guarantee of future results. 


1. Income yield is total income earned by a representative account of the strategy, net of withholding taxes and before management fees and expenses, divided by average net assets over the past 12 months. 10-year average income yield is to 31 December 2019. Dividend yields distributed by share classes will differ dependent on type and how investors choose to pay management fees and expenses.


Risk factors you should consider before investing:

  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.


Rob Neithart is a fixed income portfolio manager who focuses on global multi-currency fixed income, emerging market debt and global high income portfolios. He holds a bachelor's in economics from Occidental College and is a CFA charterholder.


Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.