High yields and resilient performance have pushed bond-focused investment trusts into the spotlight this year.
The Association of Investment Companies notes that the Debt – Loans & Bonds sector is the only one trading at a premium, offering an average yield of 8% and delivering 10%, 58% and 65% returns over one, five and ten years respectively.
Annabel Brodie-Smith of the AIC said the closed-ended structure allows managers to invest in less liquid bonds and use gearing to take advantage of opportunities, a flexibility that has contributed to the sector’s strong run.
Managers agree that high-yield bonds continue to offer attractive income, though they stress careful selection is crucial.
Pieter Staelens of CVC Income & Growth argued that debt remains less risky than equity in uncertain markets.
Invesco’s Rhys Davies said many bonds still trade below par, offering scope for capital gains alongside income, while TwentyFour’s Eoin Walsh highlighted opportunities in bank and insurance debt over traditional corporates.
However, risks are not absent. Inflation, fiscal deficits, and tighter spreads could weigh on returns, managers warn. Active selection, shorter maturities, and diversification remain central tools.
As M&G’s Adam English noted, floating-rate and private credit exposures can help offset some of the economic headwinds ahead.