City Merchants High Yield has announced that its total return on net assets for the six months ended 30 June was 2.9% and the return to shareholders was 1.5%, as the shares moved to trading at a slightly smaller premium. The interim dividend is being maintained at 5p. The report says the NAV return compares favourably with the average return of +2.15% from the funds in the Investment Association Sterling Strategic Bond sector.
The report says that overall they are defensive with a relatively high allocation to cash. This defensive position helps to offset the credit risk in the portfolio while also enabling them to quickly exploit any investment opportunities which arise in periods of market stress. The portfolio holds a core of high yield corporate bonds, focused on seasoned issuers that they consider to be default-remote. In
addition, they have significant exposure to areas of the market which they believe still offer relatively attractive yield. Approximately one fifth of the portfolio is invested in bank capital, predominantly in the subordinated debt of large European banks. Banks have come a long way since the financial crisis in repairing their balance sheets. This has been highlighted both by the
successful stress tests late last year and the way the banking sector as a whole held up during the recent Greek crisis. In their view this sector continues to pay a relatively attractive level of income for the risk. Elsewhere they also have holdings in hybrid capital instruments, across sectors including telecoms and utilities. They believe the subordination risk of these more junior debt instruments is attractive in the context of the companies’ relatively strong balance sheets.
CMHY : City Merchants High Yield positioned defensively