Market PerformanceRefer a friend

Sterling High Yield

Update 9th February 2012: High yield bonds have tended to track the health of the economy and the downs as well as the ups of the stock market. Defensively positioned high yield funds, such as Kames High Yield Bond, fared better in 2011 than their peers returning 1.52% over the twelve months (vs the sector average of -1.4%).

But with an increased chance of Europe and the UK re-entering recession in 2012 high yields could still see a correction in the short term despite the long term positives. As such high yield bonds will continue to swing around with equity markets (where we believe “cheap” is 25% below current levels for the FTSE 100).

Volatility is about the journey, not the destination. Though volatility isn’t harmful per se, bond fund investors tend to care more about the journey than equity investors. And the problem with high volatility for bond fund investors (even those in high yield) is that this might cause them to sell, and realise the capital losses which they fear most – at this point volatility morphs into real risk i.e. capital loss. Investors attracted to the high yields of the non-investment grade sector should consider the kind of journey with which they are comfortable, and then take one of three steps:

• Consider buying a fund such as JPM Strategic Bond, with an eye on capital preservation, which has a high yield exposure, or
• Buy an unfettered high yield bond fund with an outstanding track record, such as Kames High Yield Bond, or
• Wait for a better entry point, and use extreme lows in the equity market as your guide