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Introduction by Cherry Reynard
The investment landscape changed profoundly in 2022. After more than a decade of benign inflation, a combination of the Ukraine crisis, the legacy of the pandemic and gummed-up supply chains forced prices higher. Central banks were compelled to push up interest rates to levels not seen since before the global financial crisis. It was a tough adjustment for financial markets. Almost all asset classes fell, with developed market government bonds providing little protection against volatile stockmarkets. It showed the importance of diversification in fixed income portfolios, and of shaping them to the prevailing market conditions. Against this backdrop, high-yield bonds and emerging market debt showed their value in a portfolio. High-yield bonds did not suffer the same losses as investment-grade or developed market government bonds because they were less exposed to the interest rate cycle and default rates remained relatively low. Local currency emerging market debt was one of the few areas to deliver a positive return over the 12-month period. Many emerging market central banks raised rates swiftly and decisively in response to the growing inflationary threat, which in turn supported their currencies. Today, the yields available from both asset classes are high relative to history and to other fixed income options. Default rates may rise as the economy weakens but this is largely reflected in the price of bonds now. It is an interesting time to look at these asset classes, particularly as investors find their income increasingly eroded by inflation. They need a careful hand. The risks for both asset classes are idiosyncratic and strong credit analysis and security selection can make a significant difference. Diversification is also important to manage risk effectively while harnessing the higher potential returns on offer. Both asset classes are subject to bouts of illiquidity and volatility, and careful active management is crucial. In this guide, we explore the outlook for both asset classes and the role they can play in a portfolio. We look at whether current yields can be sustained and how risks can be managed effectively. In the long term, high-yield bonds and emerging market debt can present a solution for income, diversification and capital growth.
A tried and tested strategy
Going global for higher income
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The return to fixed income
Aiming high
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High hopes in face of recession
Feature
Keeping investors on the right path
Q&A: Ed Harrold
Data
After a painful year of adjustment to rising interest rates and inflation, the income available on high-yield bonds and emerging market debt is as high as it has been in a decade. This appears to be a good moment to reinvest and lock in a long-term income. However, should investors be concerned about rising default rates as recessionary pressures mount across the globe? High yield and emerging market debt suffered along with all risk assets in 2022. But having less exposure to interest rate movements than developed market government and investment-grade bonds proved an advantage. With more of the return coming from credit risk and with default rates still low, the average global high-yield bond fund was down 4.7% at 31 December 2022. The average global emerging market debt fund was down 5.1%, with local currency bond funds one of a limited group of assets delivering a positive return over the year, according to Trustnet. In spite of this relative strength, yields look attractive. The ICE BofA US High Yield Index Effective Yield shows a current average yield for US high-yield bonds of around 8%. They have reached that level only twice since 2010 — briefly in 2016 and again in March 2020. On both occasions, yields saw a subsequent rapid drop, with prices rising. Equally, the spread over government bonds looks attractive, sitting at over 480 basis points (bps) at 31 December for US high yield. There is also scope for investor sentiment to bounce back. Fairview Investing investment consultant Gavin Haynes points out that outflows from emerging market debt funds were the worst on record over the year. Anything related to Russia has been written off by most fund groups. Brazilian government bonds have seen yields almost double over the past 12 months as the central banks hiked interest rates to curb inflation. Areas such as India, Indonesia and Taiwan have been more stable but have still not drawn significant interest from investors.
It looks set to be a better year for both high-yield bonds and emerging market debt but the economic environment at the start of 2023 is challenging. How much should investors worry?
‘Both asset classes offer a diversification from developed market government bonds and equities’
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Although valuations would suggest it is a good time to reconsider these areas, the economic environment at the start of 2023 undoubtedly has its challenges. Most central banks are now forecasting recession. In a recent update, Rathbone Investment Management co-chief investment officer Ed Smith says the eurozone and the UK are likely already in recession. “The US is still holding up better than the UK and eurozone. A much watched ‘nowcast’ of Q4 GDP growth suggests the US economy is still expanding at a healthy rate. Even so, the risk of the US entering recession next year still seems significant,” says Smith. As such, credit quality is a risk. In a weaker economic environment, defaults are likely to rise. Fitch currently expects 2023 default rates to be around 2.5% to 3.5% for US high-yield companies. This is likely to tick up to 3% to 4% in 2024. This may be high relative to the near-zero rates in 2022 but is well below the 22% and 14% default rates experienced during 2007–09. Fitch says: “European high-yield bond default rates will rise materially in 2023 and 2024. We reaffirmed our base-case bond default rate forecast for 2023 at 2.5% and introduced a 2024 projection that assumes defaults rise to 4%.” Some rise in defaults is already priced in to markets and there are indications default rates may be lower than in previous cycles. In the last recession, a lot of the vulnerability was in over-leveraged US commodities groups. Today, many of these companies are in far better shape, given high commodity prices. European high yield tends to be better credit quality but the market may be hit by weaker economic conditions.
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Haynes says emerging market debt started to recover in Q4 2022 and in 2023 to date. “Inflation showed signs of peaking and investors took advantage of historically wide spreads, which widened to 600bps at one point for the benchmark index.” Haynes says the key determinants of returns for the asset class this year are likely to be the path of monetary policy in developed markets, the strength of the dollar, the extent of the opening-up of the Chinese economy and geopolitical risks in emerging markets. He adds that selectivity is vital. “When looking at emerging market debt, there are significant disparities within the asset class in terms of quality of bonds, how different emerging economies perform and how attractive their debt is. For example, the commodity-rich Middle East and Latin American economies have proved much more resilient to the Ukraine war inspired inflation shock than emerging European economies where fundamentals have worsened. “Emerging market central banks began tightening well ahead of their developed market peers, meaning these countries may be closer to the peak in the cycle. Brazil and Mexico, for example, have been hiking rates for more than a year. If global inflation stabilises — as appears to be the case — pressure on central banks will fall. The dollar has been weakening since September; historically a better sign for emerging market growth and inflows.” Against this backdrop, it should be a better year for both high-yield bonds and emerging market debt. The income available is high, and both asset classes offer a diversification from developed market government bonds and equities. Lower levels for the dollar, the changing interest rate and inflation cycle, plus a relatively mild recession could also be important over the next 12 months.
‘After a painful year, the income available on high-yield bonds and emerging market debt is as high as it has been in a decade’
By Cherry Reynard
A key support for high-yield bonds and emerging market debt over the next 12 months would be a shift in the interest rate cycle. AJ Bell financial analyst Laith Khalaf says: “It remains to be seen whether the market correction has accurately priced in default risk, as countries and firms grapple with the inflationary spike, as its effects continue to ripple through the global economy. The good news is inflation appears to be receding, which should mark the end of the tightening cycle.” He adds: “While this area of the market is less sensitive to interest rate hikes than government bond and investment-grade corporates, it does have some effect on pricing. So a more aggressive central bank would still be negative for high-yield bonds, especially as higher rates themselves also put pressure on underlying companies and heighten default risk.”
A shift on inflation
Both high-yield bonds and emerging market debt showed why they merited inclusion in a portfolio last year. They provided a bulwark for a fixed income portfolio, protecting investors from the worst effects of interest rate rises while also exhibiting less volatility than equities. It shows why these asset classes are often seen as ‘hybrids’, sharing some of the risk and return characteristics of bonds and equities. Both asset classes pay a fixed income, just like normal bonds. However, because they are considered to be at higher risk of default, they tend to trade at a significant spread over government bonds. That spread element varies with risk appetite in the market, which gives high-yield bonds and emerging market debt a more equity-like quality. As such, they have advantages at key points in the market cycle as a driver of income, diversification and capital growth.
keeping investors on the right path
Carefully curated emerging market debt and high-yield bond holdings can bring additional income, diversification and capital growth to a portfolio
‘The yield available is notably higher than for the majority of other asset classes’
In both asset classes, there is a lot of idiosyncratic risk. Bond performance tends to be strongly linked to the fortunes of an individual company or emerging market country. As such, it rewards good credit analysis. A good fund manager can uncover those companies or countries most at risk of default — or where that default risk is not adequately priced in to the market. Their aim is generally not to avoid default risk altogether but to limit its impact on an overall portfolio and ensure they are fully compensated for the risk they are taking. They will build a diversified portfolio to protect against exposure to individual securities. There are passive options for both asset classes. However, investors need to be wary of a market cap-weighted approach because it can see their investment concentrated in the most indebted, and therefore risky, securities.
‘A good fund manager can uncover companies or countries most at risk of default, or where that risk is not adequately priced in’
“There is more risk of bankruptcy in these markets, especially if economic conditions worsen more than currently expected, so more cautious and active managers are recommended because of this. “But these assets tend to have shorter durations than government bonds, so this will help reduce our interest rate sensitivity, which is advantageous if yields rise. “We believe the running yield is more than sufficient to compensate for the additional risk of credit events that lower-quality companies face in a higher interest rate environment. “In a choppy market environment, ‘clipping the coupon’, as receiving a running yield is sometimes referred to, can amount to a significant proportion of the returns available from asset classes such as these.”
Diversification
The most obvious reason to seek out high-yield corporate and emerging market bonds is for their income. The yield available is notably higher than for the majority of other asset classes. This is important at a time when inflation is chipping away at investors’ income. The yield on the ICE BofA US High Yield Index Effective Yield index — a proxy for US high-yield bonds — currently sits at over 8%. This is a little below its level in October, when it peaked at over 9%, but still significantly above its level over the past decade. For reference, the yield on the equivalent investment-grade index is just over 5%, while the yield on a 10-year US treasury is 3.5%. The yield on emerging market debt is slightly lower, at around 7% for local currency bonds. Investors receive this higher yield because of the higher default risk and lower liquidity. Certainly, high-yield bonds and emerging market debt have had periods of significant drawdowns — particularly during the global financial crisis when liquidity in both markets dried up. The recent experience of Russia showed the potential vulnerabilities. For high-yield bonds, the retail sector has been the weak spot for defaults. However, a more important question for investors is whether they are compensated for the risk they are taking. Liontrustdeputy head of multi-asset James Klempster says yields are high enough to compensate for potentially higher default levels.
Yield
High-yield bonds and emerging market debt will provide diversification at various points in the market cycle. As in 2022, they will behave differently from investment-grade and developed market government bonds when interest rates are rising. While part of their return is related to interest rates, a greater share is linked to credit exposure, meaning they will offer some diversification from conventional bonds. These areas may exhibit some correlation to equity markets, generally doing well at times of higher risk appetite and worse at times of recession. However, there is still a diversification element because more of the return comes from the income stream and volatility tends to be lower.
Idiosyncratic risk
Capital growth
Over the long term, emerging market debt and high-yield bonds have outpaced most other fixed income asset classes. The average blended global emerging market bond fund, for example, is over 15% ahead of the average UK gilt fund over five years. The average global high-yield fund is 28% ahead. That said, there have tended to be good and bad times to buy both asset classes. Liquidity can dry up at certain points in the cycle when risk appetite is low. Fairview Investing investment consultant Gavin Haynes says: “It will depend on an investor’s view of the economic outlook. “If they are optimistic on the global economy, the yields on offer today look very attractive. But, if they believe we’re heading for a difficult recession, that may not be priced in to default rates. We see some value there today.” Over the past decade, high yields have typically been a clear indicator of value. After yields spiked to 11.4% in the pandemic-led sell-off, they dropped to 6.3% in the subsequent three months (prices move inversely to yields). In February 2016, aggregate yields hit over 10%, but they had dropped to 6.1% eight months later. Carefully curated emerging market debt and high-yield bond holdings can bring additional income, diversification and capital growth to a portfolio. Investors need to be careful when they buy because these assets can prove vulnerable at certain points in the cycle. However, with yields at near-decade highs, there appears to be value in both sectors today.
A tried-and -tested strategy targeting high income, now available as a UK OEIC
Fixed income investment director, Capital Group
Ed Harrold is an investment director at Capital Group, based in London. He has 16 years of industry experience and has been with Capital Group for nine years. Prior to joining Capital, Ed worked as an associate in RBS Global Banking & Markets at the Royal Bank of Scotland. He holds a bachelor’s degree in international relations from the London School of Economics. He also holds the Chartered Financial Analyst® designation.
With persistent inflation and slower growth, UK investors are seeing domestic sources of income come under increasing pressure. This strategy offers those investors a globally diversified, high income solution. The GHIO strategy has a proven record of delivering consistent, high income streams. It has achieved this by blending two higher-yielding fixed income sectors: corporate high yield and global 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 not only derive diversification benefits; the higher income component drives total return, which could help maintain an investor’s asset base, and consequently help safeguard future income generation. Over the past 10 years, the GHIO strategy has delivered an average yield of 7.0% per annum as a result of combining diversified sources of income. The strategy is now available as an open-ended investment company: Capital Group UK – Global High Income Opportunities.
Ed Harrold
The strategy is designed to deliver a consistent level of high income. Each of the four portfolio managers seeks to do this through investing in their highest convictions, across either emerging market debt or high yield. The GHIO strategy leverages Capital Group’s deep experience in these sectors. Emerging market debt portfolio managers Rob Neithart and Kirstie Spence have 35 and 27 years of experience respectively, while high-yield portfolio managers Shannon Ward and David Daigle have 30 and 28 years. The significant tenures of these four managers mean they have invested through multiple market cycles and navigated numerous debt and currency crises. Each manager builds their portfolio issuer by issuer, using bottom-up, proprietary fundamental research drawing on the diverse views of our investment analysts and traders, focusing on credit selection, relative value and diversification. The principal investment officer has overall accountability for portfolio structure, risk and results. This approach helps to drive consistency in returns and also reduces key-person risk. In current markets, drawing on multiple views from investment specialists in these credit sectors can be particularly powerful.
They are a key input into portfolio construction for any fixed income fund. Capital Group has a deeply experienced macroeconomic research team who work alongside our portfolio managers and analysts to ensure our latest macroeconomic thinking is reflected in portfolios. With respect to the GHIO strategy, insights from the research team help inform: • Relative value opportunities and sector positioning – The nature of emerging market economies means credit cycles are not fully synchronised. Macroeconomic views can help uncover relative value opportunities, depending on where we are in the relevant cycle. – Within high-yield corporates, cycle analysis can contribute to decisions on sector and issuer positioning. For example, we may look to increase exposure to higher-quality issuers as we enter a later part of the cycle. • Currency positioning – Long-term currency analysis can help identify periods of potential strength or weakness across developed and emerging currency markets. Implications of this analysis help us to evaluate individual currency valuation and positioning. – Currency analysis is also a vital input in assessing relative value across hard and local currency markets. Furthermore, our macroeconomic research process helps portfolio managers strike the appropriate balance across duration and credit exposure through the cycle; for example, through research into long-term structural shifts in the global economy.
‘Drawing on multiple views from specialists can be powerful’
What are the diversification benefits of an allocation to high-yield and emerging market bonds for UK investors?
Domestic sources of income are coming under pressure. Complementing these traditional assets with those that offer higher income could help boost these domestic income streams. The combination of high yield and emerging markets gives UK investors access to a deeper opportunity set and therefore greater economic diversification. There are 25 developed corporate high-yield markets and over 80 countries with emerging sovereign and corporate bond markets. A broader universe expands the opportunity set. It enables the GHIO strategy to pursue different return drivers to capture credit risk by region, sector, quality and issue. It also raises the potential for more diversified interest rate and currency exposure. For emerging market local currency bonds, shifts in the slope of the local yield curve (driven by local policy decisions) help drive returns. Currency provides a further lever of return for both local and hard currency bonds, though the latter may be impacted depending on how debt is serviced and borrowed.
How do current yields compare to history for high-yield and emerging market bonds?
The sell-off in fixed income in 2022 was the worst in decades. It was indiscriminate, with yields moving higher across all fixed income asset classes — not just high-yield and emerging market debt, but investment grade and developed market credit. The positive outcome of such a fast repricing is that yields have rapidly reached levels we have not seen in generations. In high yield, for example, they are almost 5% higher than they were a year ago. In higher-yielding sectors, that means the prospect of particularly attractive income. Furthermore, there could be opportunities to achieve a good income without necessarily diving into lower credit quality.
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Philosophy and process
What differentiates the Capital Group Global High Income Opportunities (GHIO) strategy from its peers?
The strategy operates with four managers. How does this work in practice?
How influenced are you by macroeconomic factors?
Market considerations
David Daigle
David is a fixed income portfolio manager based in New York. He has 28 years of investment experience, all with Capital Group. Earlier in his career, David was an investment analyst covering multiple industries including healthcare, communications, technology and transportation. Within the GHIO strategy, David co-manages high yield debt.
Default rates in high yield have been very low, but may climb in 2023. Is this a concern?
Even with a softer macroeconomic backdrop, the US high-yield market appears healthier and more stable than for many years. Supporting factors include the absence of near-term large-scale refinancing requirements and higher-quality credits in the high-yield sector. Many corporate management teams tapped into the low-rate and favourable credit environment of the past few years. As a result, corporate borrowers have entered this period of rising rates with financing that has been locked in for a few years. Fundamentals have improved too. Many weaker high-yield issuers defaulted during the pandemic; this, and the fact the companies that have survived are typically much stronger, has helped increase the overall credit quality of the market index. Almost 50% of the US high-yield index is now rated BB (the highest credit quality for high yield). While macroeconomic headwinds could mean that default rates may rise from these very low levels, it does not seem likely they will spike sharply higher. This assessment of potential default levels remains a key part of the risk-reward balance when considering investments in the high-yield market.
Kirstie Spence
Kirstie is a fixed income portfolio manager, and she has been at Capital Group for 27 years. Earlier in her career at Capital, Kirstie was a fixed income investment analyst and her coverage included emerging markets sovereign debt with a focus on Europe, the Middle East, Africa and Latin America. As a credit analyst, she also covered European telecommunications. Based in London, Kirstie co-manages emerging market debt within the GHIO strategy.
Robert Neithart
Rob is a fixed income portfolio manager at Capital Group, and also serves on the Fixed Income Management Committee. He has 35 years of investment experience, all with Capital Group. His investment responsibilities are focused on emerging market debt and global high-income portfolios. Within the GHIO strategy, he co-manages emerging market debt. Rob is based in Los Angeles.
Shannon Ward
Shannon is a fixed income portfolio manager at Capital Group, and also serves on the Target Date Solutions Committee. She has 30 years of investment industry experience and has been with Capital Group for six years. Shannon is based in Los Angeles and co-manages high-yield debt within the GHIO strategy.
Where do you see risk in emerging market debt?
The global factors that weighed on emerging market debt in 2022 are likely to continue in 2023. While emerging markets are associated with higher risk than other areas of fixed income markets, high starting yields within emerging market local currency debt could help offset subsequent price volatility. The three key forces impacting emerging markets are: tighter financial conditions led by the US; a strong US dollar; and weaker global growth. In 2022 we saw the fastest US rate hikes since the early 80s. Higher US yields directly impact emerging market debt through an increase in external financing costs. However, the positive real interest rates offered by emerging markets remain attractive relative to other asset classes. This could help lessen the impact from tighter US financial conditions. US dollar strength was another important issue last year. It compounded losses in emerging market local currency debt and raised external financing costs. However, towards the end of 2022 and into 2023, the US dollar softened against other currencies, easing some of this pressure.
‘With domestic income sources under pressure, a broader universe can expand the opportunity set’
There is still a risk of renewed US dollar strength during periods of higher volatility in 2023; however, over the long term our analysts expect some appreciation in emerging market currency valuations. A sharp slowdown in global growth has put pressure on supply chains and commodity prices. As we enter a later stage of the Federal Reserve hiking cycle in 2023, market attention is likely to shift even more towards growth, and specifically risks around a US recession. The premium on emerging market risk has generally risen during US recessions, although the decline in spreads tends to follow swiftly on recovery. Looking ahead, while US consumption has held up quite well, domestic headwinds are strengthening. In this environment, research-driven investing becomes even more important to identify those countries with solid fundamentals and policy frameworks that are more likely to withstand market volatility.
All data as at 31 December 2022 and attributed to Capital Group, unless otherwise specified.
Past results are not a guarantee of future results. Invested capital is at risk; the strategy aims to achieve a positive return over the long term although there is no guarantee this will be achieved over that or any time period.
1. 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. 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. 2. Bloomberg US Corporate High Yield Index. Ratings based on the higher rating of S&P, Moody’s & Fitch for the highest weighted issue. Source: Bloomberg
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Following years of low interest rates, recent rises across global markets have helped bond yields increase significantly since their low points in 2021.
6 members (3 independent)
Income has returned to fixed income
Over 100 years of combined investment experience
46 meetings held
3 strategic asset allocation changes
For professional clients only, not suitable for retail investors. The views expressed are the contributor’s own and do not constitute investment advice.
Why the global high income opportunities strategy?
Across different areas of fixed income markets, the yields now available to investors have risen significantly since 2021.
Past results are not a guarantee of future results.
All information and opinions in this document are as at 31 December 2022 and attributed to Capital Group, unless otherwise stated. In US$ terms. High yield, EM hard currency sovereign, EM local currency sovereign and EM corporates as represented by the Bloomberg US High Yield 2% Issuer Cap Index, JPMorgan EMBI Global Index, JPMorgan GBI-EM Global Diversified Index and JPMorgan CEMBI Broad Diversified Index respectively. Yields are yield-to-worst. EM: emerging market. Source: Bloomberg
Income has been the primary driver of total returns
Capital Group Global High Income Opportunities strategy: sources of return from 31 August 2002 to 31 December 2022. Returns in US$ terms before fees and expenses
Data to 31 December 2022. Based on a representative account for the strategy. Results are net of management fees and expenses for the Zd share class since 31 December 2017 and Xd prior to that date. Income and dividend yield data are calculated over the last 12 months as income earned by the portfolio after withholding taxes. Data starts in 2004 due to the inception date of a dividend-paying share class.
Income powers total return
Rolling 1 year results to 31 December, %
Year
1. Before management fees and expenses for a representative account for the strategy in US$. Please visit capitalgroup.com for further details. Results are based on close of market returns (T+1). 2. Index returns in US$. 50% Bloomberg US High Yield 2% Issuer Cap Index, 20% JPMorgan EMBI Global, 20% JPM GBI-EM Global Diversified and 10% JPM CEMBI Broad Diversified Index. For full details of the index history of the portfolio please visit our fund centre at www.capitalgroup.com 3. The excess return is calculated arithmetically.
Invested capital is at risk; the strategy aims to achieve a positive return over the long term although there is no guarantee this will be achieved over that or any time period.
Portfolio
Index
Excess return
2018 2019 2020 2021 2022
-1.6 13.7 9.8 1.7 -11.5
-3.3 14.1 6.0 0.6 -12.4
1.6 -0.4 3.8 1.1 0.8
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High, consistent income
Long track record of high income: 7.0% average income yield over the last 10 years.
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7%
High total return driven by income
A bottom-up approach to high income generation has driven the strategy’s total return.
By investing globally across higher-yielding sectors, the strategy offers greater diversification from domestic assets and could help smooth returns for long-term UK investors.
4. Based on a representative account for the strategy. 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.
Capital Group: A global leader in fixed income
Managing £375bn in fixed income assets
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Making us one of the largest active fixed income asset managers in the world
With fixed income portfolio managers averaging 26 years’ industry experience
We have been managing fixed income assets for 49 years. Our distinctive investment approach, with analysts empowered to invest alongside portfolio managers, is driven by rigorous company research and a long-term perspective. Reflecting investor confidence in our fixed income capabilities, Capital Group's fixed income assets under management have grown more than 110% from 2015 to 2021.
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26
Capital Group UK – Global High Income Opportunities is now available to UK investors (from 18 January 2023) as an open-ended investment company. The fund invests broadly across the higher-yielding universe to construct a diverse portfolio built on high-conviction ideas, seeking to deliver a consistent high level of income over the long term.
5. Fixed income assets are managed by Capital Fixed Income Investors.
Find out more at www.capitalgroup.com
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. This material, issued by Capital International Management Company Sàrl (“CIMC”), 37A Avenue J.F. Kennedy, L-1855 Luxembourg, is distributed for information purposes only. CIMC is regulated by the Commission de Surveillance du Secteur Financier (“CSSF” – Financial Regulator of Luxembourg) and manages the fund(s), which is a (are) sub-fund(s) of Capital International Fund (CIF), organised as an investment company with variable capital (SICAV) under the laws of the Grand Duchy of Luxembourg and authorised by the CSSF as a UCITS. All information is as at the date indicated unless otherwise stated and subject to change. Facilities to investors (tasks according to Article 92 of the Directive 2019/1160, points b) to f)) are available at www.eifs.lu/CapitalGroup The list of countries where the Fund is registered for distribution can be obtained at all times from CIMC or online at www.capitalgroup.com/europe For the OEIC fund: This material is issued by Capital Group UK Management Company Limited ("CGUKMC"), registered office 40 Grosvenor Place, London SW1X 7GG, authorised and regulated by the Financial Conduct Authority. CGUKMC manages the fund(s), which is a (are) sub-fund(s) of Capital Group Fund (CGF), established as a UK UCITS Scheme and structured as an umbrella company (under the OEIC Regulations). You may be entitled to compensation from the Financial Services Compensation Scheme (the ‘Scheme’). Your entitlement to compensation depends on the type of business and the circumstances of the claim. Risk factors you should consider before investing: • This material is not intended to provide investment advice or be considered a personal recommendation. • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. • Past results are not a guide to future results. • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful. • The Prospectus – together with any locally required offering documentation – sets out risks, which, depending on the fund, may include risks associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems. Other important information The information in relation to the index is provided for context and illustration only. The fund is actively managed. It is not managed in reference to a benchmark. Investors acquire shares of the fund, not the underlying assets. The fund(s) is (are) offered only by Prospectus, together with the UCITS Key Investor Information Document. These documents, together with the latest Annual and Semi-Annual Reports and any documents relevant to local legislation, contain more complete information about the fund(s), including relevant risks, charges and expenses, and should be read carefully before investing. However, these documents and other information relating to the fund(s) will not be distributed to persons in any country where such distribution would be contrary to law or regulation. They can be accessed online at www.capitalgroup.com/europe, where latest daily prices are also available. The tax treatment depends on individual circumstances and may be subject to change in future. Investors should seek their own tax advice. This information is neither an offer nor a solicitation to buy or sell any securities or to provide any investment service. A summary of Fund Shareholder Rights is available at: https://www.capitalgroup.com/eu/investor-rights/ CIMC may decide to terminate its arrangements for marketing any or all of the sub-funds of Capital International Fund in any EEA country where such sub-fund(s) is (are) registered for sale at any time, in which case it will do so in accordance with the relevant UCITS rules. © 2023 Capital Group. All rights reserved
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