by Dave Baxter, Investors’ Chronicle, November 29, 2023:
The sharp rise in bond yields has had inescapable implications for many an asset class. With the UK 10-year government bond offering a ‘risk-free’ yield of more than 4 per cent, anything racier needs to justify its place in a portfolio with superior growth or income.
A flipside of that, however, is that some extremely high yields are available for those able to move up the risk spectrum in other asset classes. We’ve previously detailed the fact that big share price discounts and dividend yields can be found in the more established “alternative” investment trust sectors, with infrastructure standing out in particular. Investment trusts with a focus on debt are also offering some big yields. As our table shows, multiple trusts come with yields north of 7 per cent with some even in the double digits as of late November – although certain of these could be red flags…
Economic hardships could continue, but some conversely view debt as a promising asset class if interest rates have truly peaked. “Rising rates are increasing the likelihood that some companies will find that refinancing their debt and meeting the associated interest payments becomes more difficult,” notes QuotedData head of investment company research James Carthew. But he adds: “Today, while concerns about economic strength persist, there is hope that rates have peaked.”…
CQS New City High Yield (NCYF) is another trust that some such as Carthew favour, and it yields an even higher 9.2 per cent. The portfolio differences are worth noting here, with BIPS generating a yield in part thanks to its preference for sub-investment-grade debt and NCYF holding a fair amount of unrated debt. “Here you are relying on the skill of the respective managers to assess the creditworthiness of the underlying borrowers,” Carthew notes.
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