Designed to generate income with low interest rate risk
Against an uncertain economic backdrop, we believe high yield (HY) floating rate notes (FRNs) offer an appealing combination of features, providing an attractive income stream, while their defensive attributes should leave them well placed to withstand future turbulence in high yield markets.
Very low duration
- Not meaningfully affected by interest rate risk
Floating rate coupons
- Coupons are automatically adjusted upwards as interest rates rise
Attractive income
- Typically high yielding instruments that can target positive real income
Mostly senior secured bonds
- Greater seniority offers higher priority of claims, leading to a greater recovery rate in the event of default
Most HY FRNs are senior secured, which means they sit at the top of the capital structure, giving investors priority over unsecured creditors in the event of a default.
Why M&G (Lux) Global Floating Rate High Yield Fund
Interest rate volatility has persisted into 2025, driven by heightened political uncertainty, concerns over economic growth, and shifting expectations for monetary policy. In this environment, the fund could provide a valuable hedge against interest rate volatility, allowing investors to lock in an attractive level of yield without sacrificing the potential for attractive returns.
Attractive risk reward profile in a volatile rate environment
- A high income portfolio with a bottom-up, high conviction approach
- High single digits portfolio yield with lower volatility (than traditional high yield bonds)
Diversification
- A highly diversified portfolio across sectors and issuers with a focus on Europe
- A robust complement to US leveraged loans with a stronger liquidity profile
Downside protection with higher seniority
- Senior secured bond structure provides a strong claim and historically higher recovery rates in the event of default
- A resilient portfolio that has performed well across economic cycles, with low historic default rates
Scale in Fixed Income and High Yield investing
With over 50 sector-specialist analysts across London, Chicago, and Singapore, our award-winning fund managers work alongside one of the largest and most experienced global credit research teams.
Source: M&G Investments, 31 December 2024. In USD terms. Investment professionals include investment teams, central equity analysts, fund managers' assistants and investment specialists.
Key fund risks
- The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
- Investments in bonds are affected by interest rates, inflation and credit ratings. It is possible that bond issuers will not pay interest or return the capital. All of these events can reduce the value of bonds held by the fund.
- High yield bonds usually carry greater risk that the bond issuers may not be able to pay interest or return the capital.
- The fund may use derivatives to profit from an expected rise or fall in the value of an asset. Should the asset’s value vary in an unexpected way, the fund will incur a loss. The fund’s use of derivatives may be extensive and exceed the value of its assets(leverage). This has the effect of magnifying the size of losses and gains, resulting in greater fluctuations in the value of the fund.
- Investing in emerging markets involves a greater risk of loss due to greater political, tax, economic, foreign exchange, liquidity and regulatory risks, among other factors. There may be difficulties in buying, selling, safekeeping or valuing investments in such countries.
- The fund can be exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of movements in currency exchange rates.
- The hedging process seeks to minimise, but cannot eliminate, the effect of movements in exchange rates on the performance of the hedged share class. Hedging also limits the ability to gain from favourable movements in exchange rates.