The AXA Global High Income fund is invested primarily in the larger and more liquid US high yield corporate bond market; with the aim of providing total returns to investors, principally through a high level of income.

The fund’s neutral allocation to US domiciled names is approximately 80 per cent, the balance being invested in equivalent Pan European securities. These securities are selected by well-resourced and experienced teams located in Europe and the US. All non-sterling exposure is subsequently hedged back to sterling, thereby ironing out the impact of currency fluctuations.

The fund adopts a more conservative, value-driven approach to investing in the asset class, which has historically delivered a more defensive style of exposure, typified by relatively lower volatility and losses when compared against peer group funds in its IMA £ High Yield sector.

The high yield market recently experienced some price weakness through the 3rd quarter 2014, which has resulted in yields across the broad based US high yield corporate bond market rising to about 6 per cent. This has been driven partly by concerns over the outlook for European growth, and a large new issue calendar at a time of investor redemptions from the asset class. However recent economic data from the US points to the domestic recovery being on track, whilst corporate fundamentals remain broadly supportive, suggesting bond defaults are likely to remain at low levels.

Looking forward, the winding down of stimulus measures by the US Fed and the deterioration in liquidity across the high yield bond market will also raise the probability of further price volatility. Nevertheless, as always volatility presents opportunities; so any deterioration in high yield bond prices in the absence of poorer fundamentals, should provide a buying opportunity.

Rob Harley is senior research analyst at Tilney Bestinvest.

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