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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
What is the AJ Bell Favourite funds list?
The AJ Bell Favourite funds list is designed to lighten your research load. There are thousands of funds out there – so we’ve narrowed the field by selecting a high-quality shortlist of funds we believe can deliver their objectives over the long term. To make the list, each fund needs to pass our robust, independent selection process.
What have we changed?
We keep our Favourite funds list under constant review to ensure we have the highest conviction in the funds on the list and to see if new funds have better potential to achieve their objectives.
As a result of this work, we recently removed the Baillie Gifford High Yield Bond fund, and replaced it with the Invesco High Yield (UK) fund.
Why have we made these changes?
The high-yield bond market carries increased risks due to the higher chance of defaults. As such, it tends to be more volatile. For this reason, credit selection and risk management are integral in creating a portfolio.
For a five-year period, until the end of September, the Baillie Gifford High Yield Bond has lagged the IA £High Yield sector average. These headwinds are predominantly due to credit selection, but macro decisions also detracted from returns. The portfolio is focused on more resilient bonds, but these have underperformed in 2022 against the IA sector average and benchmark.
We’ve removed this fund from the Favourite funds list because of its sustained period of underperformance in multiple economic environments. Another reason is that we have higher conviction in other options in this part of the market.
Having undertaken a review of this sector, we’ve introduced the Invesco High Yield (UK) fund to the Favourite funds list. The fund is managed by Thomas Moore (Lead Portfolio Manager) and co-managed by Tom Hemmant.
Moore took over as lead Portfolio Manager from December 2016, well ahead of the retirement of the team’s pioneers Paul Causer and Paul Read at the end of 2021. Moore originally joined Invesco in June 2016, having spent twelve years at Morgan
Stanley in senior fixed income roles. In addition to being a fund manager, he is also co-head of fixed interest, a role he shares with Mike Matthews.
Hemmant became a co-manager of the fund in August 2020, having joined Invesco in 2011 as a fixed interest analyst. Both managers are supported by a well-resourced team (including 11 credit analysts and nine PMs). The team operate right across the credit spectrum, giving them detailed knowledge of a company as it moves through the credit journey.
The wider fund management team have over 20 years’ average experience, while the analyst team have around 10 years’ average experience. Invesco heritage can point to strong connections to UK borrowers and deep expertise in the team at analysing UK and continental European credit.
The objective of the fund is to achieve income and capital growth over the medium to long term (three to five years and more). The fund invests at least 80% of its assets in corporate and government debt securities which are either non-investment grade or have no credit rating.
Although investing globally with its portfolio, the fund has a bias towards Europe relative to its peers. It aims to keep its duration exposure (the measurement of a bond’s sensitivity to interest rates) broadly in line with the sector. Instead, performance is driven by specific credit selection of the holdings. The fund’s non-sterling exposure is hedged back to sterling to limit the impact currency has on returns.
Although slightly more expensive than the Baillie Gifford High Yield fund, with an OCF of 0.55%, the fund remains one of the cheaper options in the sector.
The AJ Bell Favourite funds list is designed to help you choose your investments, but isn’t a personal recommendation. You may own funds not included on the list – this doesn’t mean we recommend that you sell them. If you’re not confident about making your own financial decisions, or are looking for advice, you should speak to a suitably qualified financial adviser. Remember that the value of investments can change, and you could lose money as well as make it.
We hope you find this update useful. Please remember that it falls to you to monitor and manage your own investments and to make any changes you think are necessary. Keep in mind this is information only, and not a personal recommendation to buy or sell any of the funds referenced above.
Written by:
Alena Kosava