Only two funds in the IMA Sterling High Yield Bond sector have delivered top-quartile performance over the two consecutive five year periods since 2002, according to FE Trustnet research.

The £71.4m Invesco Perpetual European High Yield and £286.3m Baillie Gifford High Yield Bond funds were the only ones to significantly beat their sector between October 2002 and 2007, and October 2007 and 2012.
 
The Invesco fund is part of a range of highly-rated fixed income offerings headed by FE Alpha Manager Paul Causer and Paul Read (pictured). 

Both the Invesco and Baillie Gifford funds are completely dominant in their area, outperforming the sector over one, three, five and 10 years, as well as over one, three and six month periods. In the last decade, they have delivered 173.96 per cent and 151.01 per cent respectively, compared with a sector average of 113.64 per cent.

Performance of the funds vs sector and index over 10 yrs

Source: FE Analytics

Causer and Read have a longstanding track record on the fund, having managed the three-crown rated vehicle since 2001, while Robert Baltzer and Donald Phillips took over management of the Baillie Gifford High Yield Bond fund in June 2010.

In spite of the portfolios' consistency, both are consistently more volatile than their peer group over the last decade, losing more during the down markets of 2008 and 2011. They have achieved second-quartile Sharpe ratios in relation to the peer group over the period, indicating they have taken on a slightly higher level of risk for returns. The Invesco fund has a Sharpe ratio of 0.80 while the Baillie Gifford fund achieve a figure of 0.69.

The Sharpe ratio calculates the level of a fund’s return over and above the return of a notional risk-free investment - in this case, cash. The difference in returns is then divided by the fund’s standard deviation. 

The Baillie Gifford fund has delivered significantly more Alpha, or value, to its benchmark over a 10 year period compared to its Invesco rival. 

Alpha and Sharpe ratio over 10 yrs

Fund	Alpha	Sharpe Ratio
Baillie Gifford High Yield Bond	1.56	0.69
Invesco Perpetual European High Yield	0.44	0.8
IMA Sterling High Yield	N/A	0.7

Source: FE Analytics

While FE Alpha Manager David Coombs thinks value in high yield is stretched, Richard Troue (pictured), analyst at Hargreaves Lansdown, says there is still value in the sector in spite of a continual squeeze on yields.

“I certainly see value but the level of risk is something investors need to be mindful of. There are still attractive yields for investors able to take on the risk associated with high yield bonds,” he said.

Troue says the Invesco European High Yield fund is not currently part of Hargreaves’ Wealth 150 List because it includes other bond funds within Causer and Read’s range.

While he does rate Causer and Read highly as bond managers, Troue says investors should take note of the pair's overweight position in financials, which could elevate the level of risk in the portfolio if the European crisis kicks up again.

“If the European crisis deepens, the fund is likely to be quite volatile and could take a hit,” he said.