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Aviva Investors High Yield Bond

Elite Rated by FundCalibre

This fund predominantly invests in UK and European bonds, but it can also invest further afield. The team pursues total return rather than simply targeting the highest yield. A minimum of 80% of the portfolio must be invested in high yield bonds, while the remaining 20% can be allocated between investment grade bonds and cash. With a target of 80-100 holdings, diversification is a key attribute of the fund and holdings are not changed very often.

Company Description

Founded in 1971 and wholly owned by insurer Aviva Plc, Aviva Investors is a global fund manager with offices in 15 countries across the UK, Europe, North America and Asia. It has a range of customers, from private investors to large corporate and institutional investors, and offers products within real estate, fixed income, equity, multi-asset and alternative investments.

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Fund Manager

Chris Higham, head of credit multi-strategy fixed income, has managed this fund since November 2012, having joined Aviva Investors in 2007. He started his investment career as a credit analyst with Morley Fund Management in 1999, after which he moved to Old Mutual Global Investors to work within fixed income fund management. Chris is a CFA charterholder and studied economics at Durham University.

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The next decade will see significant growth in the high yield bond market. As opportunities increase, a healthy dose of scepticism will be required to achieve our objective of avoiding losers while generating income.

Chris Higham - Fund Manager

The Investment Process

The process starts with two scorecards. In the first, the team look at expected economic growth across various regions. In the second, they identify the best sectors. They then look for bonds that they believe are underpriced by the market. They try to identify strong businesses that possess the ability to weather tough market conditions. They particularly like those companies with debt that other managers deem ‘too high’ in which to invest, but show the ability to generate cash to pay down the debt, for instance through high profit margins on goods/services sold.

Risk

Portfolio cash levels are fairly flexible, which offers Chris the chance to sell or avoid investments during testing markets. He prefers to avoid losers rather than pick winners, which provides protection for the fund in volatile markets, as does the high level of diversification within the portfolio. The vast proportion of the fund is invested in high yield bonds, which do carry more risk of default than other bonds, although the extensive stock selection process ensures due diligence, making manager skill key to the fund performance.

Our Opinion

This fund speaks to the income-hungry investor. The fund has an extremely low to nonexistent default rate, which is a testament to Chris’ stock picking skill and focus on management teams that are incentivised to strengthen their companies’ balance sheets. Aviva’s risk management software adds to our confidence in the fund’s ability to access this higher-risk end of the bond market in a controlled fashion. We believe this is a core holding within a diversified, income-generating portfolio.

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