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  • 1 Post By Hkemail888
  • 5 Post By traineeinvestor

Is this senior secured bond fund a good investment?

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  1. #1

    Join Date
    Oct 2018
    Posts
    263

    Is this senior secured bond fund a good investment?

    I talked to a financial adviser who recommended I buy this. My concern is that the bonds are below investment grade (59% are B, 34% are BB, and 5% are BBB), but he said that the bonds are senior, so I am more likely to be paid back if the company goes bankrupt. In exchange for the slightly added risk I get higher reward, with a dividend of 7%. It makes sense to me. But I wonder how risky this is, how many companies issuing B-rated bonds would go bankrupt in a forthcoming recession (I now nobody knows, but what do you reckon)? How do senior B-rated bonds compare to non-senior BBB bonds, in terms of risk not to be paid back if the companies go bankrupt? Do you think this is a worthy investment?

    https://www.barings.com/ch/instituti...d/IE00B43WZF04

    https://www.morningstar.co.uk/uk/fun...?id=F00000MEQT


  2. #2

    Join Date
    Nov 2005
    Location
    Cramped island
    Posts
    4,140

    High yields are one of the larger bubble in the making... when will it burst, nobody knows, but good luck if you think you can get back anything decent when the single Bs default, even if they are supposedly secured... there are reason why only the BBB and above are called 'investment grades'...


  3. #3

    Join Date
    Sep 2015
    Posts
    131

    "I talked to a financial adviser who recommended I buy this" Red flag already.

    AsianXpat0 likes this.

  4. #4

    Join Date
    Oct 2006
    Location
    Hong Kong
    Posts
    14,018

    Do YOU think it's a worthy investment?


  5. #5

    Join Date
    Dec 2018
    Posts
    1,277

    Standard qualification: I am not a professional adviser (the "trainee" part for my handle is there for good reason) nor do I know anything about your personal circumstances, risk tolerance etc etc etc. The following comments are based on how I would evaluate a potential investment in this fund for my own portfolio. I have not drawn a conclusion.

    1. Barings is a large established financial institution and the fund is incorporated in Ireland which is a well regulated financial centre – I am not giving my money to a relatively unknown entity with limited resources operating out of an offshore tax haven.

    2. the portfolio consists of bonds which are "senior" and "secured" and there are 136 bonds in the portfolio so it appears to be well diversified and the risk of a catastrophic default is low. However, I only recognised 2 of the top 10 holdings so suspect that many of the bonds in the fund are clinging to the bottom end of the investment grade ratings or have been cherry picked from lower rated issues. Further due diligence is needed here.

    3. the fund pays distributions quarterly which is good for those needing income.

    4. the track record is adequate and annualised performance numbers are acceptable for a bond fund of this nature. However, I would expect lower returns going forward - the track record period began when interest rates were higher than now meaning the fund has benefitted from bond prices increasing and higher initial yields than can be obtained now. In this context the short duration is also relevant.

    5. expense ratio is around 0.42% (there were two numbers in the links for this - I have used the higher one). As interest rates and returns fall, this will become an increasingly large drag on performance.

    6. I saw no mention of front end loads, trailing fees etc. Nor was the spread between investing and exit prices immediately obvious on the face of the links. If there are any, that would be a killer (possibly unless I was intending to be in there for a long time). I need to know what it will cost me to get in and out of the fund within say, a year or whatever minimum time frame I am prepared to commit for. The net return after all these costs has to be well above what I could get on a bank deposit to consider investing.

    7. I would want to look at some other bond funds to compare costs, duration etc.

    8. I want to know what the financial adviser is getting out of this.