Aviva’s Higham takes high yield exposure to greatest ever level

Positive economic data from Japan, US and China boosts fund manager’s confidence in the global economy

Chris Higham, manager of Aviva Investors’ £1.8bn Corporate Bond and £92m Strategic Bond funds, has reversed his defensive strategy and rotated into higher risk names, as positive data from Japan, the US and China boosts his confidence in the global economy.

In his Strategic Bond fund, the manager has shifted 30% out of government bonds and cash into more risk-on trades, ramping up his high yield exposure by 10% to its highest ever level at 45%.

He has also invested 5% in investment grade credit and 15% in subordinated
financials in the same fund.

Meanwhile in the Corporate Bond fund, he has increased risk by cutting his AAA exposure from 25% to 15% and refocusing on primary issuance from selective corporations. This is an unwinding of a previous move as the manager had increased his exposure to AAA names by 10% in his Corporate Bond fund in June.

According to Higham, improved fundamental data coming out of Japan, the US and China has buoyed his confidence in the global economy, prompting him to take a more bullish stance.

“US data in particular has seen a large improvement. Valuations are a lot more attractive, and corporates are in rude health due to de-leveraging and improved balance sheets, leading us to take our highest position in high yield to date,” he said.

Higham said government bond yields no longer look attractive and a sell-off across the high yield, investment grade and financials sector has made valuations more attractive.

“Valuations have been the main driver. August and September have been bad for high yield.

“Overall, yields are now in excess of 10%, which is good compensation for the volatile economic environment,” he said.

Higham’s cash weighting now stands at around 5% in his Strategic Bond fund and less than 1% in his Corporate Bond fund.

He plans to reduce these positions further and add risk to the portfolios if a more conclusive solution to the eurozone crisis is achieved. 

The Aviva Strategic Bond fund recently reached its three year anniversary. It has returned 44.7% over three years compared to a sector average of 33%, and lost 5.5% over one year against sector losses of 2%, according to Morningstar.