HEAD-TO-HEAD: Aviva Investors versus Axa IM

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Evangelia Gkeka, Morningstar

INTRODUCTION

Global high yield bond markets suffered significant volatility in 2020.

Given the expected negative impact on global economic activity when the Covid pandemic broke out, financial markets were quick in pricing in a global recession and market participants sold risk assets, according to Evangelia Gkeka, senior analyst at Morningstar.

High yield bond markets certainly fall into that category, and the ICE BofA Global High Yield TR USD Index fell by 12.8% in March 2020, while the Global High Yield Bond Morningstar Category declined by 13.1%.

“Given the bias towards small- and medium-sized and often leveraged and cyclical companies, high yield markets underperformed investment grade bonds,” said Gkeka.

However, conditions looked better for the asset class when central banks across the world announced monetary stimulus measures to provide a cushion against the economic impact of the pandemic, and governments provided fiscal stimulus packages.

“A lot of high yield companies issued bonds in Q2 and Q3 to refinance existing debt and to raise cash given difficult market conditions,” said Gkeka.

Central banks’ bond buying programmes provided support, while investors gained comfort from the monetary and fiscal support measures and started reallocating to higher yielding bonds.

“This improved climate led a recovery from the sharp sell-off and towards the end of the year, news on the development of a coronavirus vaccine further lifted investor sentiment and high yield markets rallied strongly to finish 2020 in positive territory,” said Gkeka.

The ICE BofA Global High Yield TR was up 8% for the calendar year, and the Global High Yield Bond Morningstar Category gained 5.5%.

FSA asked Gkeka, senior analyst at Morningstar, to compare two product in the volatile global high yield fixed income category: the Axa Global High Yield Bonds Fund and the Aviva Global High Yield Bond Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 26 Mar 2021)

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