Battling volatile markets

FUND FOCUS: HIGH-YIELD FUNDS

Best performer YTD:Aviva LP Asian Pacific High-Yield Fund: +5.4%

Worst performer YTD:Merrion High-Yield Fund: -7.1%

HIGH-YIELD FUNDS have had a rocky ride over the past few weeks. Having lost most of their year-to-date gains towards the end of June, they have started the upward climb towards recovery once more.

When we last looked at the performance of such funds just a couple of weeks ago, they were booming, with average returns in the sector of 6.5 per cent in the year to June 23rd.

Since then markets have turned down, however, and, according to MoneyMate, in the year to July 9th, high-yield funds returned just 0.9 per cent on average. Over a 12-month period, returns are much higher, at 25.1 per cent.

Typically, high-yield funds attract investors looking for low volatility and risk. But they have suffered, like other funds, from the current turbulence on global markets.

According to Michael Gordon, executive manager of investments and funds at Aviva Ireland, the past month or so has been fairly typical in terms of the ongoing peaks and troughs in market confidence.

He attributes much of the recent decline in high-yield funds to global markets giving up their gains, but notes that some stocks, such as McDonald’s and Standard Chartered, have been performing well.

While oil stock BP may be dominating the headlines – and in fact has rallied of late – Gordon says that Aviva believes the stock is oversold, and is maintaining its position in the company.

Overall, the best performer in the high-yield category in the year to July 9th is Aviva’s Asian Pacific fund, which is up by 5.4 per cent. It focuses on Asia Pacific companies that pay a dividend higher than the market average, and has a portfolio of 40-60 stocks from 13 Asian countries.

According to Gordon, the fund generally looks to invest in companies with a market capitalisation of over $1 billion, and has benefited from the strong performance of financial stocks such as Bank of China, as well as its diversified geographical spread.

As well as developed markets such as Hong Kong and Australia, it also invests in emerging countries such as Thailand.

At the other end of the scale, Merrion’s high-yield fund continues to struggle and is again the worst performer, having lost 7.1 per cent in the year to July 9th, although it is positive over the past 12 months.