Flavio Carpenzano, investment director for fixed income, Capital Group UK
Event Voice - Capital Group
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
With persistent inflation and slower growth, UK investors are seeing domestic sources of income coming under increasing pressure. Capital Group's Global High Income Opportunity (GHIO) strategy offers UK investors a globally diversified, high income solution. The strategy is now available as an open-ended investment company through Capital Group UK - Global High Income Opportunities (from 18 January 2023).
With a proven track record of delivering consistent, high income streams the strategy has delivered an average yield 7.0% p.a.[1] over the past 10 years. It has achieved this by blending two higher yielding fixed income sectors: high yield corporates and emerging market debt. These markets tend to have different credit cycles, unsynchronised with UK credit markets, which present the potential to tap into different return drivers to generate income.
The approach is diversified by geography, source and characteristics. By using GHIO as a complement to domestic income, investors derive diversification benefits and gain the potential for higher income streams.
The fund operates with four portfolio managers: two emerging market debt managers and two high yield managers. The portfolio is divided into four segments and each manager builds their segment issuer-by-issuer, using bottom-up, proprietary fundamental research. Portfolio managers invest in their highest conviction ideas, drawing on diverse views from investment analysts and traders, focusing on credit selection, relative value and diversification.
This approach reduces key-person risk and helps to achieve greater consistency in returns over time. We believe, in current market conditions, that drawing on multiple views from investment specialists in these credit sectors can be particularly important.
How are you positioning your portfolio for 2023?
The sell-off across fixed income markets during 2022, while painful, means that market valuations are now at attractive levels, but with volatility likely to persist, fundamental bottom-up analysis remains essential to delivering results.
The portfolio has a slight tilt toward emerging market (EM) debt due to more favourable valuations compared with high yield.
Within local currency emerging market bonds, the fund is constructively positioned in Latin American (LATAM) countries including Mexico, Brazil and Columbia.
The fund's hard currency emerging market exposure focuses on select higher yielding countries such as the Dominican Republic, where spreads have widened amid the broader market sell-off, and Egypt, which has access to external funding.
Within high-yield corporate bonds, the fund is conservatively positioned across a broad range of sectors, but more constructively positioned in financial institutions such as asset managers and consumer non-cyclicals. As ever, exposure is driven by bottom-up issuer analysis and selection.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We currently see the most value in Latin American countries that have hiked interest rates early, such as Brazil, Mexico and Colombia, which could offer attractive valuations in EM local debt. This has helped to keep inflation under control and support exchange rates. Countries in Latin America have also been large beneficiaries of rising commodity prices and have been less exposed to the conflict in Ukraine.
We also see opportunities within higher yielding credits in emerging markets. Many of the more developed EM credits look sound fundamentally, despite the current environment. These countries are generally less reliant on foreign borrowing than in previous periods of volatility. They have lengthened the maturity of their debt issuance, and the foreign ownership of local currency bonds has broadly decreased, which is likely to result in a lower risk of sudden reversal in capital flows.
Flavio Carpenzano is the investment director for fixed income with Capital Group UK - Global High Income Opportunities.
This article is sponsored by Capital Group.
Past results are not a guarantee of future results
All information and opinions as at 31 January 2023 and attributed to Capital Group, unless otherwise specified.
1- Throughout this article, the Luxembourg SICAV Capital Group Global High Income Opportunities (LUX) (inception: 7 May 1999) is referenced as a representative account for the strategy. This is intended to illustrate our experience and capability in managing this strategy over the long term. Income yield is total income earned by the portfolio net of withholding taxes and before management fees and expenses divided by average net assets over the past 12 months. 10-year average annual income yield is to 31 December 2022. Dividend yields distributed by share classes will differ dependent on type and how investors choose to pay management fees and expenses.
FOR PROFESSIONAL INVESTORS ONLY
Financial Promotion
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. The information provided is not intended to be comprehensive or to provide advice.
