Kames Capital has seen its Kames High Yield Bond fund added to the Hargreaves Lansdown Wealth 150 fund buy-list.
The fund, managed by Philip Milburn and Melanie Mitchell, was lauded for their “excellent track record” by Meera Patel, senior analyst at Hargreaves Lansdown.
She says: “Philip Milburn and Melanie Mitchell focus on the quality of company management and the financial strength of the business.
“In addition they look to understand the relationship between different bonds issued by the same company.
“They also evaluate the outlook for a particular sector or industry taking into account issues such as competition and merger and acquisition activity. They generally prefer companies with good cash flow which is vital for servicing debt.” (article continues below)
Patel says Kames has one of the best teams in the fixed interest market.
The analyst also noted the flexibility of the fund to allocate 20% towards high quality investment grade bonds and a further 20% to cash, if the managers’ view is cautious.
She adds: “They are also mindful of the risks in the lower quality high yield bonds and will generally limit exposure to the more speculative bonds. However, any exposure to high yield bonds carries a greater risk of default than investment grade bonds, so can increase the fund’s volatility.”
Patel adds: “In our view, the outlook for the high yield bond sector is positive as companies are generally leaner, have cut costs and have repaired their balance sheets since the height of the financial crisis. High yield bonds have generally been overlooked while more cautious assets such as gilts have led the way in recent years.
“Valuations are attractive and default rates for high yield bonds are also historically low. If global economic growth improves, we believe this could potentially be a good buying opportunity into the sector.”