OPPORTUNITIES
Income is back
While interest rates have languished at near-zero for many years, they are back with a vengeance. It is now possible to derive a meaningful level of income from your fixed income portfolio.
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Yields are high
While the 1-year Singapore Treasury bill (T-bill) was yielding 0.34% two years ago (31 March 2021), it was priced at 3.75% at the end of March 2023. Similarly, the US Federal Funds Rate, a key benchmark for the interest rate environment in the US, rose from 0.25% to 5% over the same time period.
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Past results are not a guarantee of future results.
Period under analysis 31 March 2021 to 31 March 2023. Sources: Monetary Authority of Singapore, Bloomberg, Capital Group
T-bills are short-term Singapore Government Securities issued at a discount to their face value. Investors receive the full face value at maturity. The government issues 6-month and 1-year T-bills.
Yield is the income returned on an investment, such as the interest or dividends received from holding an asset. -
But diversification is key
While income opportunities are abundant, diversification remains as important as ever. No single sector has been able to deliver the best result year after year. A quick review of credit sectors shows that focusing on a single sector could result in a disappointing and bumpy ride.
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Past results are not a guarantee of future results. For illustrative purposes only. Investors cannot invest directly in an index.
Data as at 31 December 2022 in US dollar terms. Sources: Bloomberg, Capital Group
Based on the fixed income sectors and their respective indices outlined in footnote 1 (securitised bonds represented by 80% Bloomberg US CMBS ex-AAA Index and 20% 2% Bloomberg ABS Ex AAA Index). IG corp: investment grade corporate bonds. EMD: emerging market debt.
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The power of 4
Capital Group Multi-Sector Income Fund (LUX)
A fund that combines the four fixed income sectors in a single portfolio offers the potential to benefit from attractive income .
The Multi-Sector Income Fund combines the power of four key fixed income credit sectors, each of which has distinctive income characteristics.
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Investment-grade corporate bonds
Bonds issued by companies to finance their spending or investment. Considered higher quality, typically meaning they carry a lower risk of default but consequently tend to pay a lower income. The main focus is on US bonds.
Emerging market bonds
Bonds issued by governments or companies in developing countries, which typically offer higher growth prospects but carry greater risks given their stage of development. Here we primarily focus on government bonds issued in US dollars.
High-yield corporate bonds
Bonds issued by companies to finance their spending or investment. Considered generally lower quality, typically meaning they carry a higher risk of default but consequently tend to pay a higher income. The main focus is on US bonds.
Securitised bonds
Financial securities that are created by securitising individual loans. These can range from residential or commercial mortgages, to auto loans or other asset-backed securities.
Our portfolio managers have the flexibility to dynamically change, or ‘tilt’, the portfolio across the four sectors to reflect our latest investment views. This flexibility helps managers to take advantage of opportunities and mitigate risks where possible.
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The allocations (%) illustrated indicate the typical range within which a sector will be represented. The ‘neutral’ allocation (%) reflects the allocation under normal market conditions.
1. The managers also have the option to invest in other areas in an opportunistic way if they identify particularly attractive opportunities, but this typically remains a small part of the overall allocation. This may include, but is not limited to, US government debt, municipal debt and non-corporate credit, in response to market conditions.
While there is flexibility to adjust the portfolio to changing market environments, this is utilised within guardrails to keep the overall portfolio within the fund’s strategic allocation to prevent over-concentration risks in particular sectors, regions, or companies.
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Past results are not a guarantee of future results.
Data as at 30 September 2022 in USD terms. Sources: Bloomberg, Capital Group
This chart shows the relationship between the yield (reflecting the potential for delivering income) on the vertical axis, and the variability (or volatility) of returns over the past 10 years. Yield refers to yield to worst, a common measure of yield.
The different sectors are represented by the indices outlined in footnote 1. The circle is shown as an illustration of the fund’s ‘neutral’ asset allocation, using the reference index shown in footnote 2. The fund may also invest a small proportion of the portfolio outside these sectors as an opportunistic exposure.
The fund invests across a diversified range of credit sectors on a flexible basis, while maintaining its strategic allocation to both higher yielding and higher quality assets. This facilitates its pursuit of reliable income for investors.
EXPERIENCE COUNTS
Managed by an experienced and specialist team
Each of the four sectors is managed by an experienced sector specialist portfolio manager. They are supported by large, dedicated investment analyst teams that help create a portfolio built on deep insights into each of the securities the fund invests in.
Damien J. McCann
Principal Investment Officer
24 years with Capital
24 years of industry experience
Shannon Ward
US High Yield
7 years with Capital
31 years of industry experience
Scott Sykes
US investment-grade corporates
18 years with Capital
23 years of industry experience
Kirstie Spence
Emerging markets debt
28 years with Capital
28 years of industry experience
Xavier Goss
Securitised credit
3 years with Capital
20 years of industry experience
Years of experience as at 31 December 2022.
WHY CAPITAL GROUP
A leader in global investing
For more than 90 years, we’ve been searching the world for long-term opportunities, making Capital one of the oldest global investors today.
Global investing credentials
US$2.5trn
in total assets managed
26 years
average experience of our fixed income portfolio managers
US$498.0bn
Fixed income assets managed*
*Assets under management by Capital Fixed Income Investors.
Data as at 31 December 2023 and attributed to Capital Group, unless otherwise specified.
Capital Group Multi-Sector Income Fund (LUX)
The information in relation to the index is provided for context and illustration only. The fund is an actively managed UCITS. It is not managed in reference to a benchmark. Past results are not a guarantee of future results.
Risk factors you should consider before investing:
- This material is not intended to provide investment advice or be considered a personal recommendation.
- The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
- Past results are not a guarantee of future results.
- If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
- The Prospectus – together with any locally-required offering documentation – set out risks, which, depending on the fund, may include risks associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
All data as at 31 December 2022 and attributed to Capital Group, unless otherwise specified.
- US high yield: Bloomberg US High Yield Index 2% Issuer Cap; US investment-grade corporates: Bloomberg US Corporate Index; emerging market government bonds: JPMorgan EMBI Global Diversified Index
- Reference index: 45% Bloomberg US High Yield Index 2% Issuer Cap; 30% Bloomberg US Corporate Index; 15% JPMorgan EMBI Global Diversified Index; 8% Bloomberg CMBS Ex AAA Index; 2% Bloomberg ABS Ex AAA Index
Glossary
Sector indices: The indices used to represent fixed income sectors in this document are: for US high yield bonds - the Bloomberg US High Yield Index 2% Issuer Cap (i.e. limiting any single issuer to a maximum of 2%); for US investment grade corporate bonds - the Bloomberg US Corporate Index; for emerging market bonds - the JPMorgan EMBI Global Diversified Index (which tracks US dollar-denominated emerging market sovereign and quasi sovereign issued bonds). For Securitised bonds, we use a combination of 80% Bloomberg Corporate Mortgage Backed Securities (CMBS) Ex AAA Index; and 20% Bloomberg Asset Backed Securities (ABS) ex AAA Index.
UCITS: Undertakings for Collective Investment in Transferable Securities (UCITS) is a regulatory framework that allows for the sale of mutual funds across Europe and a number of Asian markets.
Yield to Worst: A measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting. It is similar to the yield to maturity, which is the percentage rate of return for a bond assuming that an investor holds the asset until its maturity date, but it accounts for bonds that an issuer can ‘call’ or repay early.