It's time to bet on high-yield bond funds: Barings

High-yield bonds generally create greater yields than other funds, but low-quality bonds are vulnerable to economic downturns and the firms’ credit risks. Investors may even lose principal when the portfolio firms go bankrupt.

Despite such concerns, it's the right time to bet on global high-yield funds as investors can expect high returns amid market volatility, said Bae In-su (Ike Bae), a representative director at Baring Asset Management Korea Ltd. in an interview with The Korea Economic Daily on Wednesday.

The US investment firm’s South Korean unit manages high-yield bond funds with great stability, and global high-yield bond prices have fallen to low levels amid macroeconomic risks, Bae added.

“The overseas high-yield bonds, including those from the US, are significantly undervalued. The bonds’ prices have dropped to 2007-2008 global financial crisis levels, despite robust fundamentals of the global firms with ample liquidity,” Bae said. It is time to consider a long-term investment in high-yield bonds for attractive returns, he added.    

Bonds with low credit ratings can be great assets if the firms survive and generate high interest for the investors, Bae said.

Baring Asset Management Korea’s global high-yield funds have recently outperformed the other high-yield funds created in the local market.

According to Seoul-based financial data provider FnGuide Inc., global high-yield funds formed in the country posted an average return of negative 8.57% over the past year.

During the same period, Baring Asset Management Korea’s two global high-yield funds, the Global Senior Secured Bond Fund and Global High-yield Fund, achieved 8.41% and 7.62%, respectively, marking the two highest returns in the country’s high-yield funds.   

The performance comes from in-depth research on corporates’ fundamentals through Baring’s global network, Bae said. With more than 20 years experience in high-yield fund investments, Barings selects portfolio firms with its 90 global investment managers, he added.

The Korean unit of Barings has seen less than 1% of its high-yield bond funds go bankrupt, and even in the case of bankruptcy, the majority of the investors receive the invested capital back through senior secured bond funds, he explained.

Bae advised investing in high-yield funds in the mid to long-term for diversification.

“If you make long-term investments in high-yield funds, it helps you keep stock investments longer even in a volatile market. You can even invest in shares more aggressively if the high-yield funds make positive returns,” he explained.

Barings manages more than $371 billion in assets in North America, Europe and Asia-Pacific. It provides investment solutions for public fixed income, public equities, private credit, private equity, real estate and insurance. The Korean unit focuses on emerging market debt, high-yield bonds and public stocks.

Write to Sul-Gi Lee and Sang-Hoon Sung at surugi@hankyung.com
Jihyun Kim edited this article.