Risk Classification: 4 – Aggressive
Price per Unit (1 Apr 16): 6.00 [USD]
Dividend Yield: 7.05%
Expense Ratio: 0.68%
Please refer prospectus for detailed risk disclosure
This discretionary managed fund invests in the US high yield bonds. Hence it is riskier than funds investing in investment grade bonds as it is exposed to higher credit risk issuers.
US HY has been positively correlated with commodities asset class as the sector has a high proportion of issuers from Energy and Materials sector. Due to slowdown in China, the commodities space has underperformed due to slowdown in demand for commodities. However, we feel that there is a cleansing process underway in commodities where supply adjusts to lower demand as higher cost and more levered producers go out of business. The prices will recover over the medium term as demand picks up again. US High Yield asset class is an attractive way to play the recovery as the fund manager, having a strong track-record will ensure that your capital is invested into the survivors of this process. As the commodity prices recover these investments will outperform.
We feel, the WTI crude price will range between US$30.00 to US$40.00 per barrel. There will be periods of volatility in crude price in 2016. It is more prudent to buy LS High Income Fund when crude prices are closer to US$30.00 to ensure an attractive entry price.
We demonstrate this relationship with below chart:
Current (Apr 2016) Monthly correlation is 0.55
Valuations in US HY are attractive.
Below Chart Shows the US High Yield Spread Index:
Fundamental Risk to investment:
This fund will sharply sell off in the event of a sharp widening in credit spreads in US High Yield and/or a sharp sell-off in US Treasuries. Neither are base case expectations, although we do expect volatility in HY spreads. Hence a more prudent strategy is to buy dips, tracking crude oil prices.
Details of ETF:
Details on Natixis website – For Live data and Prospectus