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M&G Global Floating Rate High Yield Bond Fund – Is now the time to capture relative-value opportunities?


The M&G Global Floating Rate High Yield Bond Fund offers investors the opportunity to invest in higher yielding bonds across a range of sectors, and with limited exposure to interest rate changes. Technical dynamics have affected the high yield FRN market, relative to the high yield fixed rate market, and we believe that the floating rate sector, and the senior-secured part of the capital structure, are preferable in light of the challenging economic backdrop.

In this note we consider how the two branches of the high yield market have responded to the economic and market volatility caused by the enduring COVID-19 pandemic, and how some of the technical features of the market have changed during that period. It looks at some of the factors we believe make HY FRNs attractive relative to fixed rate HY bonds as well as the value we currently see in the HY FRN market overall.

  • We don’t believe the lag of HY FRN performance for the year to date is down to fundamental factors, but rather it is a due to some technical factors in the markets, which will likely revert at some point in the future.
  • From a risk/reward perspective, we would favour HY FRNs over short-dated HY in the current environment.
  • Current spread levels appear to provide for a cumulative default rate well above the historic worst case, suggesting to us that the HY FRN market is therefore attractive.

Read full note here

The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.
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