Invesco Bond Income Plus has called an extraordinary general meeting to seek shareholder approval for fresh issuance authority, after using most of its existing headroom to meet sustained demand for the trust’s shares.
If approved, the move would give the board greater flexibility to issue new shares, including through a potential placing and retail offer, should demand continue at its current pace.
The decision follows a prolonged period in which the trust has traded at a premium to net asset value (1.41% at the time of writing) – an unusual position for a bond-focused investment trust and one that helps explain why the board is now seeking additional capacity.
In a sector more accustomed to discounts, the persistence of that premium has allowed the trust to issue stock regularly without diluting existing shareholders.
According to Rhys Davies, fund manager of Invesco Bond Income Plus, part of that appeal lies in how easily investors can assess fair value.
“We produce a daily NAV [net asset value] that is based off bond prices in a liquid market,” he said. “So investors can put a lot of faith in the NAV. We’ve stuck in that roughly 1% to 2% premium range for some time now.”
That consistency has underpinned a steady programme of issuance. Since the trust’s last annual general meeting, it has issued just under 29 million shares, using more than two-thirds of the authority granted at that point.
As of mid-January, the board had capacity to issue fewer than 14 million additional shares, which it believes is unlikely to be sufficient if demand remains at similar levels through to the next AGM, expected in June.
The resolutions being put to shareholders would allow the trust to issue up to 20% of its share capital on a non-preemptive basis. While that figure represents a ceiling rather than a target, Davies said it would give the board confidence that it can continue to meet demand without repeatedly returning to shareholders for approval, while also preserving the trust’s ability to issue shares on a day-to-day basis when it trades at a premium, rather than forcing demand into a single event.
During its previous fundraiser in early 2024, shares were offered at a modest premium to NAV, slightly below the trust’s longer-term average, giving investors an incentive to participate while remaining accretive for existing shareholders.
Davies stressed that any capital raised would be invested quickly and in line with the existing portfolio. “Any funds that we raise would be allocated to the portfolio to mirror what the portfolio currently looks like,” he said.
The strategy focuses on generating a high and sustainable income from a diversified pool of corporate bonds. Around 30% of assets are invested in investment-grade debt, with the remainder spread across high yield and subordinated securities, and exposure divided among roughly 150 issuers. Davies said that balance is designed to capture income while maintaining resilience if credit conditions deteriorate.
Subordinated bonds account for roughly a quarter of the portfolio and include additional tier one debt issued by European banks, as well as corporate hybrids from large investment-grade companies.
When diversified and carefully selected, these instruments can “offer attractive income without excessive default risk”. Exposure to bank capital alone is spread across around 25 institutions.
The trust also uses gearing, typically in the 10-15% range, as part of its core structure. Borrowing allows it to increase exposure to lower-risk bonds and provides flexibility during periods of market volatility, with clear limits and board oversight in place.
For many investors, however, the core attraction remains income visibility. Invesco Bond Income Plus targets an annual dividend of 12.25p per share, paid quarterly, with the yield a function of the share price rather than the stated objective.
“We talk about a yield of 7%, but the dividend policy is a pence per share figure,” Davies said. “The board is very strongly committed to keeping that dividend up and increasing it over time.”
James Carthew, head of research at QuotedData, said the trust’s appeal should be viewed through a long-term lens. Debt funds, he noted, are inherently cyclical and can move back to discounts if interest rates rise sharply again and yields reprice.
But for investors focused on income rather than short-term pricing, that matters less. Buying a trust like Invesco Bond Income Plus on a 7% yield effectively locks in that income stream, even if market conditions change.
“Ultimately, it comes down to how long-term your view is,” Carthew said, adding that investors prepared to look through the cycle may also see the trust return to a premium over time.