For professional investors and financial advisers only not for use by retail investors Reasons why: European high yield Aberdeen European High Yield Bond Fund February 7 Steven Growth European high yield is no longer a niche market. It now stands at an impressive 8.7bn, up from a mere 7.bn back at the start of 8. The number of issuers has grown considerably over that time too, meaning there s more choice for high yield investors than ever before. Demand is growing too. Aging populations have resulted in an increased need for income as more people are saving longer for retirement. The low yield environment has made that difficult, driving more investors to the high yield market. Logan Global Head of High Yield Ben Pakenham Deputy Global Head of High Yield Resilience European high yield doesn t get the respect it deserves in terms of its defensive qualities. In times of market turmoil, European high yield tends to hold up better than most other asset classes. This is often overlooked by investors and market commentators, especially during risk asset drawdowns and duration sell-offs. A recent example of this was when the aftermath of the Brexit vote. High yield in Europe held steady, especially when compared to the highly volatile equities. Similarly, because the asset class has a low correlation with US government bond yields, it weathered the surprise US election result with minimal impact. Total returns from Europe - - Dec Euro Stoxx (LHS) Jun Dec Merrill Lynch Euro High Yield Index (HE) (RHS) Source: Bloomberg. For Illustrative purposes only. No assumptions regarding future performance should be made, July. 7 - - - - Jun Reasons why series Page of
Low default rate Default risk is one of the larger threats to high yield bond markets but default rates should remain low in the European high yield market. Europe is easing monetary conditions which will continue to support high-yield issuers. The European Central Bank s (ECB s) bond purchases, most notably of corporate bonds, also pushes investment grade buyers into the asset class in the search for yield, which suppresses refinancing risk. Leverage levels remain moderate by historic standards and the low cost of debt is a significant boon for high yield issuers. Consequently, market expectations are for default rates to remain low. High Yield default rates 9 999 7 8 9 7 FY Default Rate - Europe FY Default Rate - US EU Forecast US Forecast Source: Moody s default report, January 7. Low correlation to government bonds Monetary policy, low growth and deflation in Europe have pushed government yields to record lows. Under these conditions the argument for diversification to high yield in order to achieve stronger returns has never been more valid. Failure to acknowledge this can have significant implications for the performance of a diversified fixed income portfolio. Correlation of Euro high yield and Y bund returns... -. -. -. -.8 Jan Jan Jan 7 Jan 8 Jan 9 Jan Jan Jan Jan Jan Jan Jan Source: JP Morgan, 7 July. Rolling week correlation. Reasons why series Page of
Spoilt for choice Greater diversification across different sectors Automotive Banking Basic Industry Capital Goods Consumer Goods Energy December 7 December Source: BofA Merrill Lynch, HE, December. Financial Services Healthcare Insurance Media Transportation Real Estate Retail Leisure Services Telecomms Technology & Electronics Utilities European High Yield average credit rating BB BB- B+ B Dec Dec Dec Dec Dec Dec 7 Dec 8 Source: JP Morgan, December. For illustrative purposes only. Dec 9 Dec Dec Dec Dec Dec Dec Dec Compelling risk and return characteristics years to September Annualized return 9 8 Gold European High Yield (HE) 7 S&P year Bunds year US Treasury year US Treasury FTSE year Bunds US TIPS European Corps (ER) EuroStoxx Annualized volatility Source: Bloomberg, RIMES September. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. Individuals cannot invest directly in an index. For illustrative purposes only. US treasuries are backed by the full faith and credit of the US government. Reasons why series Page of
Cumulative performance 8. annualised returns since launch A 8 Dec Dec Dec Dec Dec Dec Aberdeen European High Yield Bond A Acc IE BofA Merrill Lynch European Currency High Yield Constrained Index Hedged GBP IA High Yield NR Performance Data: Share Class A Acc Source: Lipper, Bank of America Merrill Lynch, Basis: Total Return, NAV to NAV, UK Net Income Reinvested. Fund = Aberdeen European High Yield Bond Fund. Benchmark - BofA Merrill Lynch Euro High Yield Constrained (HEC). Note that prior to March the benchmark was JP Morgan Euro High Yield. Performance is shown gross of fees and does not reflect investment management fees. Had such fees been deducted, returns would have been lower. The benchmark is included for comparison purposes only as the fund is not managed to a specific benchmark. Annual returns () - year ended / Fund.9.. 8.. Calendar year performance () Fund.9.. 8.. Benchmark..9.7.9 9.7 Difference (.8). (.7) (.7). Performance Data: Share Class A Acc. Source: Lipper, Bank of America Merrill Lynch, Basis: Total Return, NAV to NAV, UK Net Income Reinvested. These figures do not include the initial charge; if this is paid it will reduce performance from that shown. Reasons why series Page of
Important Information For professional investors and financial advisers only not for use by retail investors. Risk factors you should consider before investing: The value of investments and the income from them can go down as well as up and you may get back less than the amount invested. Exchange rates: Investing globally can bring additional returns and diversify risk. However, currency exchange rate fluctuations may have a positive or negative impact on the value of your investment. Bonds: Bonds are affected by changes in interest rates, inflation and any decline in creditworthiness of the bond issuer. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may not be able to pay the bond income as promised or could fail to repay the capital amount used to purchase the bond. A full list of risks applicable to this Fund can be found in the Prospectus. Other important information: The Fund is a sub-fund of Aberdeen Investment Funds ICVC, an authorised open-ended investment company (OEIC). It is not intended for distribution or use by any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication or use would be prohibited. The Fund is not registered under the United States Securities Act of 9, nor the United States Investment Company Act of 9 and therefore may not directly or indirectly be offered or sold in the United States of America or any of its states, territories, possessions or other areas subject to its jurisdiction or to or for the benefit of a United States Person. The Authorised Corporate Director is Aberdeen Fund Managers Limited. Nothing herein constitutes investment, legal, tax or other advice and is not to be relied upon in making an investment or other decision. No recommendation is made, positive or otherwise, regarding individual securities mentioned. This is not an invitation to subscribe for shares in the Fund and is by way of information only. Subscriptions will only be received and shares issued on the basis of the current Prospectus, relevant Key Investor Information Document (KIID) and Supplementary Information Document (SID) for the Fund. These can be obtained free of charge from Aberdeen Fund Managers Limited, PO Box 99, Chelmsford, CM99 WJ. Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. FTSE International Limited ( FTSE ) FTSE 7. FTSE is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under Licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. Reasons why series Page of 7 /7