The Invesco Bond Income Plus (BIPS ) still sits on a premium despite the unexpected write-down of some of its Credit Suisse bonds and the managers have increased their exposure to financials, according to the trust’s interim report. 

Over the first six months, the shares returned 1% including dividends, maintaining the 1.6% premium to net asset value they have traded at for almost a year. The trust is one of just 24 to sit on a premium out of the entire AIC investment trust universe. 

The underlying investment return including dividends was 2.1% for the first six months of the year, falling short of the benchmark’s 5%.

Part of the underperformance came from Credit Suisse Additional Tier 1 bonds, which were written down when the bank was acquired by UBS. The portfolio had 0.54% in the bonds at the end of February. 

However, financials remain favoured by the pair with the top five bonds all from financials in the UK or France. 

‘We view financials as providing a more favourable risk-reward profile than similar-rated high-yield bonds,’ commented Rhys Davies (pictured below) and Edward Craven.

However, they warned that while the fundamentals of the 20 European banks held in the £288m portfolio were strong, they were aware of the risks that a crisis of confidence can pose to the sector and to individual banks.

Sentiment affected banks over the six months to the end of June following the US regional bank crisis, but better-than-expected sentiment to high-yield bonds narrowed credit spreads, or the gap in yield between government and corporate bonds. In return, bond valuations fell.

Looking to the second half of the year, the pair were cautious, noting that while it was ‘encouraging that attractive yields are available from so many more sources’, volatility is likely to be a defining feature of 2023.

‘It is therefore important to remain nimble and be prepared to sell bonds that have performed well, especially whilst our outlook for the global economy and high yield bond markets, particularly the weaker parts, remains cautious,’ they said.

The pair increased exposure to subordinated bank and insurance debt from 30.7% to 33.7%, with sub-investment grade BB-rated bonds making up 32% of assets and B-rated taking 29.7%, during the period. 

B-rated bonds were the strongest part of the high-yield market, returning 6.2% versus a 4.8% gain for BB-rated debt, while riskier CCC and lower-rated bonds generated a return of 1.2%. By comparison, sterling investment-grade finished the period in negative territory, down 1%, with safe UK gilts faring even worse with a 3.9% decline.

The dividend was increased to 5.75p per share, putting the trust ‘firmly on course’ to achieve the full-year payout of 11.5p per share, said chair Tim Scholefield.