LGIM bond fund lands on buy list with barbell approach

The Adviser Centre recommends high yield fund run by Martin Reeves

A Legal & General Investment Management high yield fund has been added to The Adviser Centre recommended list due to its barbell approach to managing credit risk and its exposure to emerging markets.

The £1.3bn Legal & General High Income Trust is managed by Martin Reeves (pictured), head of global high yield at LGIM. Reeves is supported by regional managers with Tom Huggins in the US, as well as London-based Darrell Chan and John Ryan, who cover emerging markets and Europe respectively.

The Adviser Centre research director Gill Hutchison said they benefit from LGIM’s well-resourced and experienced global fixed income team.

Reeves joined LGIM in 2011 from AllianceBernstein, where he had worked since 1998.

L&G High Income Trust performance

1yr3yr5yr10yr
L&G High Income Trust-5.1023.1118.37106.34
IA £ High Yield-2.0016.5414.92123.39
ICE BofAML BBB Global Non-Financial High Yield Constrained Hedge GBP TR in GB-1.6923.6220.82139.28
Source: FE Analytics

Barbells and emerging markets

Hutchison highlighted the fact the team seeks to generate income aligned to their assessment of prevailing market risk.

She said: “While their investment approach is flexible, they are guided by a strong macro structure and a robust valuation framework.

“In constructing the fund, they favour a ‘barbell’ approach, creating a defensive core of lower yield, more resilient names, alongside higher spread names where they believe they are adequately compensated for the risk.  This means the fund can experience periods of greater volatility/performance divergence from the index and peers.”

A buy-and-hold approach for the core of the portfolio helps reduce turnover, which is helpful for larger funds in the bond space where “cost control is paramount and liquidity conditions in the market not always favourable”, she told Portfolio Adviser.

The fund holds 53.3% in B-rated issuers with BB the next highest allocation at 33.2%. Modified duration on the fund is 4.1 years and the annualised yield is 6.5%, according to its latest factsheet.

She added the fund can be used to gain broad exposure to high yield. “The inclusion of emerging market credits differentiates it from many peer funds in the IA £ High Yield Bond sector; it is also one of the larger offerings in the sector but is commensurately diverse by issuer and underlying market.”

Approximately a third of the fund is in emerging markets with Latin America the largest exposure at 7.6%.

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