Increased demand for Invesco Bond Income Plus raises the question: is it worth investing?
The Invesco Bond Income Plus (BIPS) fund, a popular choice among fixed-income investors, has reached an all-time peak despite a recent downturn in interest rates. This fund, managed by Invesco, boasts a redemption yield of 8%, which rises to 9% with the benefit of borrowings amounting to 14% of net assets.
The effective interest rate of borrowings in the BIPS portfolio is around 4%. Despite the high yield, the total fund costs, including a management fee of 0.65%, stand at 0.9%. This relatively low cost makes BIPS an attractive option for many investors.
The fund's manager, Davies, is known for his cautious approach, emphasizing compensation for rate risk and credit risk with relatively high yields. He manages £2 billion in Invesco's Monthly Income Plus fund and £2 billion in a segregated mandate, in addition to BIPS.
Nearly 70% of the BIPS portfolio is sub-investment grade, indicating a focus on higher-yielding, riskier assets. However, default rates on these bonds are low, according to Moody's, with rates below 4%.
The portfolio turnover of about a third each year is high, demonstrating the team's willingness to take profits and seek better investment opportunities. The fund management team comprises 13 fund managers, 19 analysts, and eight dealers.
Despite the recent recovery from a 18% fall in the share price in the year to 30 September 2022, due to rising interest rates in the UK and US, the shares of BIPS have traded at a small premium to net asset value (NAV) since late 2022.
The fund has performed well, returning 13% in the last year, but the three-year return of just 4% reflects higher interest rates. Yields on longer-dated government bonds are not much more than 4%, and yields on higher-quality corporate bonds are scarcely higher. Better yields may be available elsewhere for fixed-income investors, but the ride is unlikely to be as easy as with BIPS.
Moreover, over £30 million of additional share issuance has occurred in the last year, bringing the market value of BIPS to £330 million, the largest in the sector. The fund's strong performance and high yield continue to attract investors, despite the current low-interest-rate environment.
In conclusion, the Invesco Bond Income Plus Fund offers a lower but healthy 6.7% yield and has demonstrated resilience in the face of falling interest rates. Its cautious approach, high yields, and strong performance make it an attractive option for fixed-income investors seeking a balanced risk-reward profile.
