US & European High Yield Bond Fund — USD

US & European High Yield Bond Fund: Credit Income at the Right End of the Risk Spectrum

High yield bonds — corporate bonds rated below investment grade (BB/Ba or lower) — offer meaningfully higher income than government bonds or investment-grade corporate credit in exchange for accepting higher credit risk. For investors who understand how to distinguish between cyclical credit stress and genuine default risk, the high yield market offers one of the most consistent income opportunities in fixed income.

This actively managed fund invests in a diversified portfolio of US and European high yield bonds, targeting 7–9% per annum through disciplined credit selection, with monthly dealing windows providing materially better liquidity than private credit alternatives.

The High Yield Opportunity

High yield bonds sit in the capital structure below investment-grade debt but above equity. Companies issuing high yield bonds are either:

• Fallen angels: Formerly investment-grade companies that have been downgraded, often through a specific event (acquisition, sector pressure, earnings miss) rather than permanent deterioration
• Established leveraged credits: Companies that have operated with sub-investment-grade ratings for years, have stable and predictable business models, but carry levels of debt that preclude an investment-grade rating
• Leveraged buyout issuers: Companies backed by PE sponsors that have issued debt to fund their acquisition, typically with improving operational trajectories but elevated leverage ratios

The key insight that professional high yield investors apply is the distinction between default probability and loss given default. The headline yield spread over government bonds compensates investors for expected defaults — but if active managers can select bonds from issuers less likely to default than the market average implies, the risk-adjusted return materially exceeds what passive exposure achieves.

Investment Process

The fund's credit analysts evaluate each issuer on a bottom-up basis before inclusion and on an ongoing basis throughout the holding period. The analysis focuses on:

Cash flow coverage: Does the business generate sufficient operating cash flow to service its debt obligations through a cyclical downturn, not just at the current point in the cycle?

Asset coverage: In the event of default, what is the likely recovery value for bond holders? First-lien secured bonds offer materially better recoveries than unsecured bonds.

Maturity profile: Avoiding near-term maturity concentrations that create refinancing risk — a company with $500 million of bonds maturing in 12 months faces existential pressure if credit markets tighten; a company with maturities spread over 4–7 years does not.

Management credibility: High yield credit outcomes are strongly influenced by management teams' willingness to prioritise debt service over equity distributions in periods of stress.

Industry dynamics: Cyclically exposed sectors (automotive, retail, energy) are held with smaller weights than recurring-revenue, essential-services industries.

Portfolio Construction

Credit quality: The portfolio is concentrated in BB-rated bonds (the highest quality tier within high yield) and B-rated bonds (mid-tier). CCC-rated bonds (the most speculative, highest default probability tier) are limited to a maximum of 10% of the portfolio.

Issuer diversification: No single issuer exceeds 3% of the portfolio. Eighty or more issuers provide diversification that substantially reduces the impact of any individual default.

Geographic split: Approximately 55–65% in US dollar-denominated bonds, 35–45% in euro-denominated European bonds (currency-hedged to USD at the fund level to remove FX risk).

Sector limits: No single sector exceeds 15% of the portfolio. Current preferred sectors include healthcare, business services, cable/telecoms, and food and beverage.

Monthly Liquidity

The fund offers monthly dealing windows with five-business-day settlement — significantly more liquid than private credit funds (which are typically locked up for three to ten years) and similar to many institutional fixed income strategies. This liquidity comes at a cost: monthly rather than daily dealing, and in a severe market stress the fund board has the power to temporarily suspend redemptions to protect remaining investors from forced fire-sale selling.

Risk Considerations

Default risk: High yield issuers default at higher rates than investment-grade companies. In an economic downturn, default rates in the high yield market typically rise from 2–3% (benign conditions) to 8–12% (severe recession). Active credit selection aims to limit defaults within the portfolio to below-market rates, but defaults are inevitable.

Market liquidity and spread risk: High yield bond spreads widen significantly in risk-off market environments — even for issuers that will not default, bond prices fall as risk aversion increases. A portfolio heavily invested in below-par bonds can show meaningful mark-to-market losses during credit market dislocations.

Interest rate sensitivity: High yield bonds carry less interest rate risk than investment-grade bonds (because a larger proportion of their return is the credit spread rather than the risk-free rate), but they are not immune. Rising base rates increase financing costs for high yield issuers and can be a catalyst for rising defaults.

Cyclical sensitivity: High yield corporate credits are more sensitive to the economic cycle than government bonds. A recession scenario typically causes both mark-to-market losses and rising defaults simultaneously.

Suitability

This fund suits investors seeking income materially above government bonds and investment-grade credit, who understand that accepting credit risk means accepting the possibility of periodic mark-to-market drawdowns and occasional issuer defaults. It is appropriate as an income allocation within a diversified portfolio, sized in proportion to the investor's overall credit exposure tolerance. Not suitable for capital preservation mandates or investors who cannot tolerate volatility.

How to Invest

Contact our investment team to receive the fund's KIID, prospectus, current portfolio factsheet, and credit manager track record. Full suitability assessment required before subscription. Minimum investment $75,000.

Important: Capital is at risk. Past performance is not a guarantee of future returns. This is for information purposes only and does not constitute a personal recommendation. Seek independent financial advice before investing. This fund illustrates the type of high yield opportunity Global Investments advises on — it is not a live investment offer.