The Best Global High Yield Unit Trusts Just Keep Pace with High Yield Index ETFs. – Investment Moats

FSMOne, under iFast has the widest range of unit trust that you can look up.

You can use their Fund Selector to help you filter to the unit trust you are interested in.

Here are my filters:

1. Asset Class: Fixed Income
2. Geographical Sector: Global
3. Specialist Sector: High Yield
4. Currency: USD
5. Toggle: View in Product Currency (from View in SGD)

We have about 9 Global high yield unit trusts.

I want to contrast them to the iShares Global High Yield Corp Bond UCITS ETF, which is an Irish-domiciled ETF listed on the London Stock Exchange that you can purchase through Interactive Brokers. The ETF tracks the Markit iBoxx Global Developed Markets Liquid High Yield Capped Index.

There are a few share class of note:

1. HYLA: USD Accumulating | Incepted in Oct 2017
2. HYLD: USD Distributing | Incepted in Nov 2012

There are more classes such as USD, EUR and GBP hedged that might interest some of you.

I listed the fund name and the benchmark index, and the 5-year and 10-year annualized performances against the HYLD:

Some of these funds are accumulating (does not pay out a distribution) and distributing, but officially the return on factsheets are total returns, which are returns that consider capital gains and distributions.

The problem with funds is that you have no idea what a manager was trying to do, and looking at their listed benchmark, may give you some clues because that is what you are trying to beat. One fund HSBC’s US Short Duration High Yield bond doesn’t have a benchmark.

The weird thing is that JPMorgan’s Global High Yield Bond uses a US high yield index. What is up with that. If you check it’s factsheet, you would realize that its like 94.4% in US.

5-years and 10-years is not always long time frames in my opinion and more considered intermediate timeframes but they easily give me some data for how the actively-managed unit trust perform. And almost all underperform the iShares Global High Yield Corp Bond UCITS ETF.

The one that outperform was… the JPMorgan’s Global High Yield Bond fund. Not sure if it is their direction taken to be so much in US, but we can always compare the performance against iShares $ High Yield Corp Bond UCITS ETF (SHYU) to see how a more US high yield focus fund does against a US index ETF. SHYU did 5.0% for 5-years and 5% for 10-years.

In a way JPMorgan kept pace with the index, despite higher fee.

BlackRock’s Global High Yield did as well as the index over a 10-year timeframe.

If you are wondering if there is an upside in owning actively managed high yield fixed income for better performance, or greater peace of mind, the answer seems to be… not so much.

There isn’t an upside there despite a lot of talk about able to time based on economic regimes.

At least not these group of managers.

Even they do well, they kept pace.

One thing you would also notice is… likely that 5-year and 10-year return is lower than the yield-to-maturity of the high yield fixed income.

Why is that?

Yield that they earn is part of the equation. You would give back through fees, manager’s decision but also when the amount of fixed income default.

In the table below, I put out some metrics that allow us to understand each of their current portfolios better:

Most of the average yield-to-maturity is higher than the iShares ETF, and their credit quality tends to be worse. This shows that the fund managers are reaching for lower quality to boost the return. I have also listed out the amount of fixed income they own that is of CCC credit quality and below because those are where the high default rates are when shit hits the fan.

Almost all have more CCC rated and below bonds with BlackRock and Goldman Sachs high yield have the highest allocation.

Duration, measures the sensitivity of fixed income securities to changes in interest rate. Generally, you will realize that high yield have much shorter duration which means they are less sensitive to interest rate rise. They are more sensitive to economic recession.

So do bear in mind the characteristics are different.

Duration is affected by how significant the coupon and how long is the maturity. If a fixed income has longer maturity, duration is higher. If coupon is larger, duration is shorter.

Since high yield’s coupons are generally more significant, the duration tend to be lower.

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Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.

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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.

You can view Kyith’s current portfolio here, which uses his Free Google Stock Portfolio Tracker.

His investment broker of choice is Interactive Brokers, which allows him to invest in securities from different exchanges all over the world, at very low commission rates, without custodian fees, near spot currency rates.

You can read more about Kyith here.