Get a high income with Schroder High Yield Opportunities

"Eurozone economic performances remain very favourable for corporate solvency, particularly as business leaders continue with their cautious balance sheet management policies," says Raphaël Gallardo, multi-asset strategist at Natixis Asset Management.

And Schroder High Yield Opportunities Fund (GB00B5143284) could be a good way to access the income European high yield bonds offer. This fund aims to provide income and capital growth by investing in fixed and floating rate securities worldwide, but 37.5 per cent of its assets are in Europe excluding the UK/Middle East. It invests at least 80 per cent of its assets in securities rated below investment-grade, or unrated securities. It can also invest in collective investment schemes, warrants and cash. And the fund might use derivatives and leverage, and take short positions.

Schroder High Yield Opportunities has a yield of 6.3 per cent and investors can opt to receive monthly payouts. In terms of total return, over three and five years it is the top fund in the Investment Association (IA) Sterling High Yield Bond sector, and fourth out of 31 funds over one year.

The fund does not have a benchmark, but has outperformed its sector average and the Bank of America Merrill Lynch European Currency High Yield Constrained Index over one, three and five years.

Not having a benchmark gives its manager Michael Scott a greater choice of potential investments. And as there are more high-yield bond issuers than investment-grade bond issuers, high-yield bonds are relatively under-researched. This enables Mr Scott and his research team to hunt for good opportunities.

Industrials are Schroder High Yield Opportunities' largest sector exposure, representing 53 per cent of its assets, followed by financials, which account for 30.6 per cent. Bank debt comprises about half of the financials exposure, which is weighted towards subordinated bonds with little exposure to senior debt.

The fund is underweight Italy, due to ongoing political unease, and France, where Mr Scott says valuations are not compelling. The fund is also underweight cyclical capital expenditure-related companies - particularly in the automotive, basic industry and capital goods sectors. The fund is well diversified with 151 holdings.

It has been run by Mr Scott since August 2012. He joined Schroders in 2006 as a European industrials credit analyst covering investment-grade and high-yield issuers, before becoming a portfolio manager in the European and UK credit team.

Fund research company FundCalibre has recently rated the fund as 'Elite' - a stamp of approval that it bestows on what it considers to be the top investment funds, where it believes the managers can consistently deliver positive value over time.

"This is a consistent fund with a very high yield of over 6 per cent - it's almost impossible to get a high yield on anything these days," says Darius McDermott, director at FundCalibre. "That does mean it is going down the credit spectrum to riskier companies, but historically it hasn't taken much more risk than its peers to get that premium yield."

However, he adds that the fund has been more volatile than some of its peers and as it is fishing for investments among riskier companies, there is always an increased risk of issuers defaulting on their debt.

But globally defaults remain low, and a number of the bonds that have defaulted have been in the energy sector where this fund has little exposure. Mr Scott's strong record, meanwhile, suggests he generally makes the right call on investment decisions.

So if you have a high risk appetite, and are looking for higher income from a consistent performer, Schroder High Yield Opportunities looks like a good solution. Buy. EA.

Source: Morningstar, as at 9/05/17, *Schroders as at 31/03/17

Performance

Source: Morningstar, as at 05/05/17

Top 10 holdings, as at 31/03/17 (%)

Source: Schroders

Sector breakdown, as at 31/03/17 (%)

Source: Schroders

IC Tip rating