HEAD-TO-HEAD: Fidelity versus Income Partners

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Isaac Poole, Oreana Financial

Introduction

Asia high yield has struggled in the wake of China’s “three red lines” policy, which was introduced in August 2020 to rein in the highly indebted property sector but has led to a number of developers defaulting on their bonds.

Some investors have said that the asset class looks attractive now, pointing to the fact that a number of non-investment grade companies took advantage of the abundance of liquidity made available by central banks after the pandemic hit to restructure their debt.

As a result, only a small amount of high yield debt is coming to maturity before 2024 and some investors have suggested that valuations and yields in the asset class would provide an adequate cushion in the event of a mild recession.

Some investors also noted that as the yield to maturity for Asian high yield approaches double digits, valuations seem fair or even slightly attractive for investors who are less sensitive to price volatility.

However, it would take a brave investor to reengage with the asset class right now and Isaac Poole, global chief investment officer at Oreana Financial, acknowledged that it was only for those with a strong risk appetite.

“Spreads have widened and while that offers reasonable income to investors, the absolute level of yield has started to look distressed in some key markets. The risk of global recession leaves the asset class one for investors with elevated risk appetites at this point,” he said.

Instead most investors have been touting the merits of reengaging with investment grade debt, with Jean-Charles Sambor, head of emerging market fixed income at BNP Paribas Asset Management, describing investing in the asset class as a “no brainer” right now.

Against this backdrop, FSA asked Oreana’s Poole to select two high-yield funds for comparison. He chose the Fidelity Funds – Asia High Yield A and Income Partners Managed Volatility High Yield Bond Fund for comparison.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 14 October 2022)

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