Invesco Bond Income Plus results for 2024 show NAV and share price total returns for the year of 8.5% and 8.8% respectively. The NAV return was below the 10.2% achieved by the ICE Bank of America Merrill Lynch European Currency High Yield Index (hedged to GBP) but above the average return of 4.6% for funds in the Investment Association Sterling Strategic Bond Sector.
The chairman says that the under-performance against the index is attributable to a number of factors. The managers chose to hold a higher credit quality portfolio, on average, than the index. The portfolio had some unhedged currency exposure (non-GBP) and the pound was relatively strong in 2024. The portfolio also gained and lost some performance through individual holdings.
The dividend was increased to 11.6875p, up 1.6%. The target for 2025 is 12.25p, up 4.8%. The dividend was fully covered 1.03x by current year net revenue.
The company traded at a premium to NAV for most of the year, closing at a premium of 1.8% having started 2024 at a 1.4% premium. It issued a total of 21,676,727 shares during the year to meet demand with this total including 7,926,727 shares issued as a result of a successful share placing completed in February.
Extract from a Q&A with the managers
What factors contributed to and detracted from the rise in net asset value?
2024 started with yields of around 7% for European high yield and 5% for Sterling investment grade. This provided a good base for returns, which were enhanced by some capital appreciation.
As would be expected from a portfolio focussed on high yield and subordinated bonds, credit risk was the main driver of performance, accounting for the bulk of the return. Within credit, exposure to subordinated financials and corporate high yield bonds contributed most, but there were also contributions from senior bank debt, corporate hybrid instruments and our small allocation to emerging markets debt.
Sterling duration (the sensitivity of the portfolio to UK interest rates) did not contribute significantly to returns. The income that was gained was cancelled out by the negative price movement. The exposure to US Dollar and Euro duration was a positive factor.
The strong performance of financials (the Coco market(7) returned over 12%) is reflected in the list of individual securities that contributed most to portfolio returns. Six of the top ten are banks and three are insurers.
The ten securities that detracted most are from a variety of sectors. Two are long-dated gilts, reflecting the weakness of GBP rates markets. Two others are bonds issued by Thames Water Finance. These cost the portfolio a combined –0.34%. The process of restructuring Thames into a sustainably financed business has been long and difficult. As creditors to the company, we are closely involved in the discussions with government, regulators and other investors. We see a route to a settlement. The bulk of our holdings are in Class A bonds, which are the most senior in the structure. They are currently priced in the market at above 80 pence in the pound.
BIPS : Cautious stance holds back Invesco Bond Income Plus but it remains popular
