Invesco Bond Income Plus (BIPS) released its annual results for the year ended 31 December 2022. In what was a tough year across the entire high-yield sector, shares fell from a premium of 2.3% at the beginning of the period to close at a discount of 3.4%, a fall of 5.2%. NAV fell 10.8%, trailing the CE Bank of America Merrill Lynch European High Yield Index benchmark which fell 10.4%. Despite this, BIPS did manage to increase its dividend which was up 4.7% on the previous financial year.
While it was certainly a tough year, the performance was relatively close to the benchmark and, given the volatility, management wished to stress the company’s long-term performance. For the three and five years to the end of 2022, the company’s NAV total return was 0.4% and 9.8% respectively. This outcome compares favourably with total returns of –3.9% and 5.6% for the index.
Chairman, Tim Scholefield, had this to say about the prospects for high yield markets goings forward;
”The course of inflation will continue to dominate the financial landscape for the foreseeable future. It is reasonable to expect the recent declines in energy and commodity prices to presage a fall in consumer price inflation over the next year which in turn should allow interest rates to plateau and for markets then to anticipate a more favourable monetary environment. The risks to this relatively benign outlook include the potential for the conflict in Ukraine to escalate, together with the possibility that inflation proves ‘sticky’ and hence difficult to force back within central bank target ranges. In any event we expect 2023 to be a year of weak economic growth as the impact of last year’s rapid interest rate hikes take hold.
”Turning to prospects for high yield markets it is noteworthy that yields are well above the average levels of the past ten years and so markets do appear to be on a somewhat cautious footing. This is an encouraging point to note for investors with a longer term viewpoint and in the portfolio managers’ report, Rhys and Edward provide commentary on how the portfolio is positioned to take advantage of the current environment.
”My comments to shareholders in recent years have necessarily focussed on the adverse consequences of macroeconomic events such as Covid-19, the conflict in Ukraine and latterly the global surge in inflation. Moreover, as I write these comments, the plight of several weaker banks has necessitated intervention by authorities both in Europe and the USA. We are monitoring developments closely for signs these failures might suggest systematic challenges rather than, as it currently appears, problems which are largely confined to the banks concerned.
”Despite the economic and market turbulence of recent years I believe your company has demonstrated its resilience, combining a proven, successful investment approach with the benefits of scale that come from its position as largest company in its sector. While I suspect that we will continue to have to navigate economic and political challenges in 2023 I am nevertheless confident that your company remains in a strong position to capture the long term opportunities provided by high yield markets.”
BIPS : Invesco Bond Income still ahead despite tough year