Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

High Yield Bond funds

Gilts, bonds, and interest-bearing shares
Gan020
Lemon Slice
Posts: 461
Joined: March 3rd, 2019, 12:25 pm
Has thanked: 178 times
Been thanked: 246 times

High Yield Bond funds

#287142

Postby Gan020 » February 27th, 2020, 2:26 pm

I've sold all my high yield bond funds today. Including NCYF which was trading a 6.5% premia to NAV and my daughters IPE which is at a 1.5% premia to NAV.

Prefs are falling fast, bonds reacting much more slowly. I'm not sure where it's going but I'm not happy holding at a large premia to NAV when the underlying bonds, pref shares etc. in these funds must now be far more risky. Certainly the price movements on the financial prefs supports this.

88V8
Lemon Half
Posts: 5768
Joined: November 4th, 2016, 11:22 am
Has thanked: 4097 times
Been thanked: 2559 times

Re: High Yield Bond funds

#287270

Postby 88V8 » February 27th, 2020, 10:44 pm

As an income/holder, I'd welcome some falls as a purchase opportunity, albeit I'm overexposed financials so opportunities would be academic fttb.
Is this an opportunist sale on your part or do you see a pale horseman?

V8

Gan020
Lemon Slice
Posts: 461
Joined: March 3rd, 2019, 12:25 pm
Has thanked: 178 times
Been thanked: 246 times

Re: High Yield Bond funds

#287330

Postby Gan020 » February 28th, 2020, 8:51 am

It is my view that fixed income has been over-priced for some considerable time and the current stress in the markets will remove some of this over-pricing. I know there are others on these boards who share my views on over-pricing of bonds but it is fair to say there are others who see very low 40 year gilt yields as the new norm.

Like others I have been forced to own assets at uncomfortable price in order to gain an income stream.

If you take NCYF the published NAV at the close of play on Friday was 55.8p and the share price was 59.4-59.8 a premia of 7.2%.

Imho all funds should trade below NAV as you can go and by the underlying instruments yourself and avoid not only the NAV premia but also the fund managers charge of around 1%. It is true that you can't actually buy the underlying yourself in 75% of cases as a PI and you are happy to pay someone else do the work but nonetheless I suggest the share price should be somewhere below to close to NAV. This seems to be how it works for equity funds so I don't see why bond funds should be different.

Next we move to the underlying shares and bonds in the portfolio. This is difficult for me to price on a real time basis as a PI for many of the instruments but I do know that NCYF owns a high proportion of bank bonds and prefs all of which are now under pressure and from memory has some investments in aircraft leasing and some bonds in Rea whose value depends on the value of palm oil which is linked in a round about way to the price of oil. It's a high risk fund, paying around 8% yield so you don't have to think too hard to realise the underlying investments must be risky too. Risk is off the table right now and it would be sensible to consider from the underlying investments whether any of them will have risk of default. I judge this as small but I am not familiar with the full underlying portfolio and the aircraft ones worry me, alhtough I'm sure they have some form of security.

I see the buy price on NCYF as I write is now 55.4, which is still above NAV of 54.87 from 2 days ago and the underlying instruments have fallen since then.

The market is re-pricing risk, the question is will it re-price it to normal long term trends or will it overshoot?


Return to “Gilts and Bonds”

Who is online

Users browsing this forum: Humpty and 6 guests