TwentyFour Select Monthly Income (SMIF ) doubts the US will enjoy the soft landing being pencilled in, warning that interest rate hikes are yet to be fully felt.

The £192m portfolio of debt instruments, ranging from asset-backed securities, high yield loans and subordinated bank debt, saw its net asset value soar in the year ending 30 September, with a total return of 17.5%.

Manager Eoin Walsh said collateralised loan obligations (CLOs), which bundle tiers of different risk ratings of company debt, were the top performer, delivering 34.8%, as they benefited from ‘the very high starting spread and the floating rate nature’ of the investment as central banks increased the cost of borrowing.

High yield assets also performed well in Europe and the US, although AT1s – brought in after the 2008 financial crisis to ensure banks had access to an additional top tier of capital in an emergency – ‘saw some volatility’ after the debacle at Credit Suisse in which Swiss regulators placed equity holders above bondholders in the wake of the bank’s collapse. However, AT1s still recorded a return of 11.4%.

Walsh had enough confidence in AT1s to take part in an ‘innovative tender and refinance by Shawbrook Bank’ with regards to its AT1, which resulted in ‘significant benefit to bondholders’.

Walsh and his team, which includes Felipe Villarroel, Mark Holman, David Norris, George Curtis, Charlene Malik and Pierre Beniguel, reduced exposure to US high yield, which performed well and ‘looked good value at a spread level’.

‘We increased the CLO exposure, which offered an extremely attractive yield and strong structural protection against defaults,’ said Walsh.

‘Within sectors, the team conducted relative value switches looking to increase the credit quality of the portfolio, improve the yield and extend duration to lock in the available attractive yield levels.’

At the end of the year, the 9.4%-yielder held a position in Heimstaden AB, a holding company whose main asset is a ‘significant stake’ in pan-European residential real estate investment trust (Reit) Heimstaden Bostad.

‘The bonds have underperformed over the year… as the sentiment towards Reits has soured as financing costs have increased over the last year,’ he said.

‘Heimstaden Bostad is addressing its high leverage with an asset sale programme and is committed to its investment grade rating. As it rolls out its asset sale programme and potentially secures equity support, we expect bonds to recover.’

There were no defaults over the year.

While the portfolio has held up well over the year, Walsh is keeping his guard up when it comes to future prospects, with inflation and labour markets influencing markets.

‘While currently the market is buying the soft landing rhetoric, it seems too early to call this with some growth measures rolling over and with potentially a number of hikes to come that may affect the real economy,’ he said.