Fund Insights Directory 2016 | Page 37

HIGH YIELD Three-year sector performance SECTOR ANALYSIS Global high yield and US dollar high yield outperformed euro high yield over the threeyear period in US dollar terms. However, the underperformance by the latter is mainly due to a weakening of the euro against the US dollar. The sector generally outperformed by a considerable margin as euro high yield spreads have been narrower than that of the US dollar high yield compared to three years ago. The sector’s top performers were mainly US dollar high yield funds with a core focus on Asia. In 2015, these funds typically held a significant position in China high yield properties, which had a particularly strong run. MARKET REVIEW Source: FE Analytics (31 Mar ’13 to 31 Mar ’16) Three-year annualised return/volatility High yield spread across various regions including the US, Europe and Asia have widened compared to three years ago. In 2013 and the first half of 2014, high yield spreads generally tightened amid an improving global macro outlook and as investors chased higher-yielding assets due to interest rates at historic lows. Spreads subsequently widened on increasing uncertainties over global growth. Such concerns intensified in the second half of 2015 as the China market slumped and energy prices fell sharply, driving spreads even wider. As sentiment improved in 2016, spreads tightened but those on US high yield stayed even wider than that of Asian high yield as the US experienced its highest number of bond issuance for over a decade. MARKET OUTLOOK While the ECB’s easing program should prove supportive to riskier assets, these measures may already have been priced into their valuations. US high yields are currently trading at an attractive level as the economic outlook continues to look compelling among developed markets. While Asian high yield spreads have narrowed, the supply of bond issuance in the region is expected to be reduced over 2016, which should help provide some support for the asset class. Provided by FE Advisory Asia as of 31 May ’16 Source: FE Analytics (31 Mar ’13 to 31 Mar ’16)