In QuotedData’s morning briefing 24 August 2021:
- Invesco Bond Income Plus has published its first set of accounts since it was created from the merger of City Merchants High Yield and Invesco Enhanced Income. Over the first half of 2021, it returned 4.3% in NAV terms and 3.3% in share price terms. The half-year dividend was 5.25p – on track to pay 10.75p for the full year. The company benchmarks itself against the ICE BofA European Currency High Yield Index, which returned 3.3%. Rhys Davies, its manager (pictured), says that, as inflation concerns rose, “it was the better-quality end of bond markets that fared worst as this tends to be more sensitive to changes in interest rates. According to ICE, sterling investment grade corporate bonds returned –2.80% and UK Gilts -5.82% for the six-month period.” The yield on the benchmark fell to an all-time low of 2.96% in June. Companies are back borrowing – European high yield issuance over the past six months was €93.1bn, almost as high as seen for the whole of 2020, which at €103.3bn was a record year. Default rates continue to fall. According to Moody’s, as at the end of June only 28 issuers have defaulted year to date, roughly a quarter of the 114 defaults in the same period last year. Moody’s go on to forecast that their baseline trailing 12-month default rate will fall from the current 3.9% to 2.2% in June 2022.
- Axiom European Financial Debt beat Invesco Bond Income Plus by some distance over the first half. Returns on a NAV basis were 11.49% and on a share price return basis, 10.23%. Dividends for the first half were 3p – the target for the full year is 6p. Its managers say that “the easing of various lockdown restrictions and record consumer spending, created a very favourable backdrop for bonds issued by financial institutions.
- Turning to US equities, JPMorgan US Smaller reports an NAV return of 10.9% for the six months ended 30 June 2021. That’s well behind the benchmark – the Russell 2000 Index – which returned 16.2%. For shareholders, the problem was compounded by a widening discount. The share price return was 7.8%. There is a good reason for the NAV underperformance, however. In common with many other funds, JPMorgan US Smaller does not hold the sorts of stocks that did well as hopes of an economic recovery grew. As the managers say “the highest returns have been concentrated in unprofitable and lower quality stocks driven in part by unprecedented retail trading activity“. The report does note that “in terms of style and market capitalisation, value significantly outperformed growth, while small cap stocks outperformed large caps.” You might have thought then that JPMorgan American would struggle to beat its small cap-focused sister, but no.
- For the six months ended 30 June 2021, JPMorgan American posted a total return on net assets of 15.4%. The return to shareholders was 13.9%. and the total return from the benchmark, the S&P 500 Index in sterling terms, was 13.9%. The report says that the main drivers of outperformance during the period were sector allocation and gearing.