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High Yield Fixed Income

Since 1989, we have managed funds under the Colonial First State brand. Fund names are changing to reflect our new name, First Sentier Investors.

High Yield Fixed income can distribute stable income and total return while dampening volatility relative to equities and adding yield relative to core bonds.

Active management and a focus on downside risk can help produce stable long-term out performance. 

We aim to generate consistent alpha in the top quartile relative to peers which over long periods leads to attractive peer comparisons.

Our Process

Our Strategy strives to maximize risk adjusted returns, and seeks superior absolute returns over a market cycle, with lower volatility than the broad market. Our approach involves maximizing the default adjusted yield and spread of a diversified portfolio, implementing a fundamental, value-driven investment style.

First, and foremost, our approach is about risk control. Default risk is the dominant risk factor, and all portfolio investments meet stringent, and quantifiable minimum “margin of safety” requirements.

Secondarily, we strive never to buy credit risk at the wrong price. An optimal, risk adjusted, portfolio construction combines dynamic fundamental, bottom-up selection, with continuous top-down portfolio risk management.

 

Margin of safety

Default risk is the dominant risk factor, and all portfolio investments must meet stringent, and quantifiable minimum “margin of safety” requirements.

Investment process

Furthermore, the investment process strives never to buy credit risk at the wrong price utilizing a default-adjusted yield and spread methodology and aims to maximise the default-adjusted yield and spread of a diversified portfolio. We have a strong credit research team that utilizes our process to allocate issuers that pass our stringent quality control one of our proprietary Risk Groups, which are used to identify attractive investment opportunities.

Contrarian risk positioning

Our tactical risk positioning relative to the broad high yield market is typically contrarian; often considerably divergent to peers and largely indifferent to a benchmark index.

While our investment process is rigorous in implementation, it is conceptually simple to summarize

Matt Philo

Co-Head of High Yield strategies

Investment process summary

  • Minimum yield screen: with "positive event potential" exceptions

  • Minimum margin-of safety requirements; quantified and stringently applied

  • Qualitative fundamental corporate assessments to further safeguard against default risk

  • Default adjusted methodology, focused on the spread premium necessary to overcompensate to estimated default risk

  • Catalysts for total return, expected to result in total returns above a coupon based yiel

  • Portfolio construction, combines bottom-up credit selection with top-down portfolio risk management

  • Credit risk control: managed by the dynamic, continuous implementation of the disciplined bottom-up investment process (as described above). Primary credit risks include: default, Negative Event and ESG risks.

  • Risk monitoring and review: includes daily portfolio reporting and analysis

Case study

August 2020

Renewed Growth in High Yield Market

• The US High Yield Fixed Income market has recently increased in size, after 6 years of modest decline, in sharp contrast to the very rapid growth of Leveraged Loans and Private Debt markets

• There has been a record new issuance year-to-date (August  2020) of relatively high quality bonds, with many secured bond deals

• Much of the additional High Yield market growth due to significant “fallen angels” (downgraded IG bonds)

• All of these trends have led to a 25-year low in HY credits rated B- or lower

Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, S&P LCD, as of July 31, 2020.
Past performance is not indicative of future performance.

Responsible Investment

Our corporate RI strategy is based upon three strategic pillars of quality, stewardship and engagement.

We partner with our clients to provide solutions that maximise the probability that they will achieve their investment objectives. We assess our client needs based on three key criteria: risk tolerance, investment horizon and return ambition level. We utilise third party monitoring services for our direct holdings.

Learn more about the High Yield Fixed Income team's approach to Responsible Investment

Matt Philo

Senior Portfolio Manager, Co-Head of High Yield

    Jason Epstein

    Senior Portfolio Manager, Co-Head of High Yield

      Linda Grillo

      Head High Yield Trader

        Jonathan Mann

        SENIOR ANALYST

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          In Australia ‘Colonial’, ‘Colonial First State’, ‘CFS’, and ‘First State Global Asset Management’ are trade marks of Colonial Holding Company Limited and ‘Colonial First State Investments‘ is a trade mark of Commonwealth Bank of Australia (the Bank) and all of these trade marks are used by First Sentier Investors under licence.

          On 16 September 2019, Colonial First State Global Asset Management (CFSGAM) rebranded to First Sentier Investors. Any content produced prior to this date may be branded CFSGAM and include trade marks that First Sentier Investors is permitted to use under licence.

          Material on this website is intended to provide general information only. Such material does not into account your objectives, financial situation or needs. You should consider these matters before acting on the information and consider the relevant Product Disclosure Statement for any product named on this website before making an investment decision.

          Total returns for the Funds have been calculated using exit prices after taking into account all ongoing fees and assuming reinvestment of distributions. No allowance has been made for taxation. Past performance is no indication of future performance.

          Any opinions expressed in videos are the opinions of the individual participant and are subject to change without notice. Such opinions are not a recommendation to hold, purchase or sell a particular financial product and may not include all of the information required to make such a decision. Before making any such decision you should consult a financial adviser.

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