Milburn turns back on riskier high yield bonds

Philip Milburn, manager of the £1.5bn Kames High Yield Bond fund, is avoiding taking on extra risk in his portfolio this year, as he does not expect the extra yield on offer from CCC-rated bonds will be sufficient to make up for the default risk.

Milburn said there has been too much price compression between CCC- and BBB-rated bonds as investors have rushed into riskier issues in their search for yield. “Total returns will mostly come from income on the asset class this year, so there is no need to take excessive risks chasing yield,” he said. His fund only has around 5% exposure to CCC bonds and 80% of the vehicle is split equally between B and BB bonds. Another 10% sits in BBBs with “high yield-like characteristics”, the manager said. “We have been running the fund defensively since the second half of last year and it has...