Edward Harrold, Investment Manager from Capital Group discusses the Capital Group Multi-Sector Income Fund (LUX) at the March Funds to Watch event.
1. What are you trying to achieve for investors and what role could your fund play in an investors portfolio? How do you structure this fund?
Capital Group Multi-Sector Income Fund (LUX) (MSI) was designed to target reliable income generation for investors, irrespective of market conditions. The fund seeks to achieve this by investing broadly across four main fixed income credit sectors: investment grade corporates, high-yield corporates, securitised credit and emerging markets debt. We believe that diversifying across multiple income-generating sectors and dynamically adjusting allocations to maintain a balanced risk profile could deliver a reliable income stream.
The fund seeks an optimal balance between high-quality and high-yielding assets. High-quality investment grade bonds offer stability and resilience, while bonds with higher income potential can enhance cash flows and yield.
The investment approach occupies a sweet spot between sector-specific and unconstrained ‘go-anywhere' strategies. It offers the flexibility to seize opportunistic ideas as they arise, while its broad allocation range can mitigate the risk of overconcentration in any single sector. The portfolio is managed by a Principal Investment Officer and a team of seasoned sector specialist portfolio managers.
We believe the fund could be attractive for investors who are seeking reliable income from their fixed income exposure, or are seeking a prudent, diversified approach to accessing the fixed income credit sectors.
2. What are the big opportunities and risks for your strategy in 2025?
We expect global growth to continue to be led by the US. Inflation is likely to remain sticky, and central banks are likely to continue easing monetary policy, albeit at a slower pace, offering favourable tailwinds for credit markets across the ratings spectrum. When combined with relatively high yields that are likely to stay elevated, the prospects for income-seeking investors look attractive. However, we remain extremely mindful of volatility and tail risks that might arise with the implications of rising policy uncertainty and its impact on the global economy.
Credit fundamentals are sound and are expected to remain robust. We believe investment grade corporate fundamentals are stable, and technicals remain robust and supportive of spreads. While spreads may not compress further, they are likely to continue to be stable. Within high yield corporates we expect valuations to remain tight given resilient fundamentals and supportive technicals. All-in yields remain attractive for both investment grade and high yield corporates and we remain focused on higher quality issuers and a handful of idiosyncratic credit opportunities.
Emerging market debt fundamentals remain stable and positive, with solid growth and no major imbalances. Inflation is moderating, leaving room for more interest rate cuts that could bolster fundamentals. Securitised bonds offer a healthy carry advantage as a means to diversify sources of income, and we continue to find opportunities in the higher-grade segments.
3. Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be a stock, sector or thematic level.
MSI draws on its ability to diversify across income-generating sectors and its flexibility to tilt exposures within changing market conditions, while maintaining a balanced risk profile, in seeking consistent and durable income through the market cycle. This is especially the case in the current and expected environment where rates are likely to remain structurally higher, with the MSI strategy aiming to capture income generating potential across the four different fixed income sectors.
Within investment grade corporates, we remain focused on higher quality issuers and seeking security-level opportunities with compelling fundamental value based on idiosyncratic features.
While valuations for high yield corporates remain tight at an overall index level, we adopt a selective approach, seeking out bottom-up opportunities whilst remaining mindful of avoiding names that, whilst on face value appear to be offering very attractive yields, may be experiencing varying levels of idiosyncratic distress.
The portfolio balances positioning and risks within investment grade and high yield emerging markets debt across both sovereigns and corporates.
Securitised credit within the portfolio offers relative value opportunities and provides a means of adding to the portfolio.
