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By Dave Paterson  | Wednesday, March 29, 2017

RBC Global High Yield Bond Fund has an interesting mandate with a target mix that is split between high-yield bonds and emerging market debt. At the end of December, managers Jane Lesslie and Frank Gambino had the portfolio at roughly their target mix, with 52% invested in emerging market bonds and 45% in high-yield debt. They had taken some profits off the table in the high-yield space, and had added to the emerging markets exposure after the U.S. election. The fund’s strategy has produced some stellar results, especially in 2016, when it won the Fundata FundGrade A+™ Award for the second time.

From a credit quality perspective, approximately 27% of the fund was investment grade, while 70% was in non-investment grade. Still, the focus was on high-quality, high-yield names, with only 8% of the holdings with less than a B credit rating.

The duration was 5.9 years, much lower than the duration of a more traditional investment grade portfolio. The yield to maturity was also significantly higher, coming in just shy of 5%.

The recent list of top holdings included focused investment funds as well has individual bond holdings: iShares J.P. Morgan USD Emerging Markets Bond Index ETF, BlueBay Emerging Markets Corporate Bond Fund, iShares iBoxx $ High Yield Corporate Bond ETF, SPDR Bloomberg Barclays High Yield Bond ETF, and Peru 8.75% bond.

The fund is also well diversified geographically, with 35.7% weighting to the U.S., 21.3% in Latin America, 10.3% in Emerging Asia, 10.2% in Emerging Europe, and 8.1% in Canada.

With a 1-year gain of 13.1% as of the end of February, this fund has been a respectable performer, but the longer-term numbers are more impressive, with consistent above-average performance. It posted a 10-year average annual compounded rate of return of 6.36% to Feb. 28, compared with 4.6% for the High Yield Fixed Income category, 5.18% for 5 years versus 4.99% for the category, and 4.81% for 3 years compared with 3.57% for the category.

Volatility has been well contained. With a 3-year standard deviation of 4.93% for a FundData volatility ranking of 2/10, the fund has been less volatile than the index and in line with its peers. The downside protection offered has also been impressive, which is largely a result of the fund’s significant exposure to emerging market bonds.

Management is active in employing their process and tends to be more active in volatile periods. Still, on balance, turnover has been modest, averaging just under 60% for the past five years.

While not my top pick in the high-yield space, I like the diversified portfolio of the RBC Global High Yield Fund and the active management approach used. I wouldn’t use it as a core fixed-income holding, but it could be a nice addition to an otherwise well-diversified portfolio.

RBC Global High Yield Bond Fund
Fund company:
RBC Global Asset Management
Fund type:
High Yield Fixed Income
FundGrade™ Rating: B (February)
Fundata FundGrade A+ Award: 2016, 2012
Style: Credit Analysis
Risk level: Low-Medium
Load status: No load/Optional
RRSP/RRIF suitability: Good
Manager: Jane Lesslie since July 2003; Frank Gambino since July 2003
MER: 1.74%
Fund code: RBF579 (no load)
Minimum initial investment: $500

Dave Paterson, CFA , is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.


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