15th Oct 2014 08:43
LONDON (Alliance News) - City Merchants High Yield Trust Ltd Wednesday said its net asset value total return was down 0.9% over the three months ended September 30.
"High yield bond yields remain low by historical standards but they are relatively high compared to core government bond yields. This is particularly the case in Europe where Bund yields are negative out to three years. We believe we can still find opportunities, most notably in banks and other financials, where we think aggregate yields continue to offer value. In our view, ongoing structural reform and the implementation of new, more conservative banking sector regulations should remain supportive of legacy subordinated bank debt," portfolio managers Paul Read, Paul Causer, Rhys Davies said in a statement.
"We also see areas of value in hybrid debt securities. We feel the excess yield available in return for the subordination risk on these securities can be attractive, typically a 1% to 2% pick up in yield over equivalent senior bonds. Our investments here are focused on issuers with strong balance sheets, mainly in utility, telecom and insurance names. Our outlook is relatively defensive, with a bias toward higher quality credits," the portfolio managers said.
"We have taken the opportunity of recent weakness in the sector to add some selective exposure to higher quality high yield names. For example, we added a new issue by Pizza Express and in the secondary market added exposure to clothing manufacturer Takko. In line with our overall defensive stance we are not using the loan facility and are maintaining a significant cash level. In more volatile markets this positions us, as a provider of liquidity, to be able to drive hard bargains," the portfolio managers added.
City Merchants High Yield Trust's investment objective is to obtain both high income and capital growth from investment, predominantly in high-yielding fixed-interest securities.
City Merchants High Yield shares were Wednesday quoted marginally higher at 185.05p.
By Samuel Agini; [email protected]; @samuelagini
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