Higher-quality approach to credit

Balance yield and risk with high-quality credit exposure

OUR APPROACH

No “artificial additives”

Avoid scope creep. Take comfort with a higher quality approach to credit

 

WHY CONSIDER

Attractive yield pick-up


Potential for a consistent yield pick-up alongside diversification benefits

 

OUR SOLUTION

A complementary building block for a balanced portfolio

 

Providing investors with a clear risk profile, facilitating portfolio construction


No “artificial additives” for peace of mind

A strict adherence to quality means we don’t sacrifice safety in pursuit of higher yields. Capital Group’s higher-quality approach to investment-grade credit gives you greater peace of mind as it provides a higher degree of stability than its peer universe.

Benefits of a higher-quality approach

As an example, the global corporate peer universe highlights scope creep into riskier high yield bonds.

Investment guidelines of Capital Group Global Corporate Bond Fund (LUX)

No active allocation to
sub-investment grade bonds

Investments must at least be rated BBB- and equivalent.

Fallen angels must be sold within three months

Portfolio managers are not forced to sell at the point of downgrade when values are typically at their lowest.

Fallen angels: bonds that were once investment grade but has since fallen to high yield status.

Data as at 31 December 2020. Sources: Morningstar, Capital Group
*Universe breakdown is based on latest available data from Morningstar.
Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer’s creditworthiness.
If agency ratings differ, the security will be considered to have received the highest of those ratings, consistent with the fund’s investment policies.

Damir Bettini
Fixed Income Portfolio manager

 

“The balance of risks seems finely poised but now is not a time for complacency, and selectivity is key”

 

Damir Bettini, Principal Investment Officer of Capital Group Global Corporate Bond Fund (LUX), explains why selectivity remains key in this Investment Insight.


Attractive yield pick-up

The credit spread between the investment-grade bonds of sovereigns and corporates has held at a relatively stable level for around a decade. This presents an attractive yield pick-up and an opportunity to benefit from greater diversification through depth of issuers and breadth across sectors.

Consistent yield pick-up has contributed to meaningful cumulative returns

Past results are not a guarantee of future results.
10-year data as at 31 December 2020 in USD terms. Source: Bloomberg Barclays
1. Bloomberg Barclays Global Corporate Index
2. Bloomberg Barclays Global Sovereign Index


A complementary building block for a balanced portfolio

In addition to the strict quality criteria, Capital Group’s approach to investment-grade credit strategies further manages portfolio risk by fully hedging foreign currencies and limiting active duration exposure. This results in a clear risk profile designed to minimise unwanted risk factors in investor’s overall portfolio.

In times of market upheaval, this higher-quality fixed income approach can potentially serve as a ballast to investor’s investment portfolio by lowering its overall volatility.

Take comfort with Capital Group’s higher-quality credit portfolios

Capital Group Global Corporate Bond Fund (LUX)

Provides global exposure to corporate investment-grade bonds. Indexed to Bloomberg Barclays Global Aggregate Corporate (hedged to USD).

Top 3 sector weights (in %) 
Base currency USD
Average credit rating A

Capital Group Euro Corporate Bond Fund (LUX)

Provides exposure to euro-denominated corporate investment-grade bonds. Indexed to Bloomberg Barclays Euro Aggregate Corporate Total Return.

Top 3 sector weights (in %) 
Base currency EUR
Average credit rating A

Capital Group US Corporate Bond Fund (LUX)

Provides exposure to USD-denominated corporate investment-grade bonds. Indexed to Bloomberg Barclays US Corporate Investment Grade.

Top 3 sector weights (in %) 
Base currency USD
Average credit rating A

The information in relation to the index is provided for context and illustration only. The fund is an actively managed UCITS. It is not managed in reference to a benchmark.

Data as at 31 March 2021, unless otherwise stated. Source: Capital Group


 

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 guarantee of 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. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • The Prospectus – together with any locally-required offering documentation – set out risks, which, depending on the fund, may include risks associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.

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.