Liontrust GF High Yield Bond Fund Q2 2025 review

The Fund (C5 sterling accumulation class) returned 3.2%* in sterling terms in Q1 2025 while the ICE Bank of America Merrill Lynch Global High Yield Index (GBP hedged) comparator benchmark returned 3.1% and the average return for the IA Sterling High Yield reference sector was 2.3%. The primary B5 US dollar share class returned 3.3%, while the ICE Bank of America Merrill Lynch Global High Yield Index (USD hedged) comparator benchmark returned 3.1% and the average return for the EAA Fund USD High Yield Bond (Morningstar) reference sector was 3.8%.

We also compare the Fund’s performance to a leading Global High Yield ETF (seeking to outperform by 1.5% a year) †. The Fund’s C5 sterling shares class return was slightly ahead of the ETF in Q2 and has now outperformed by eight percentage points since inception (June 2018).

The global high yield market returned 3.12% (US dollar terms) in the second quarter of 2025. The US high yield market produced a 3.57% return. In Europe, the high yield market returned 2.67%. BBs were best performing part of the market by rating at 3.14%, only marginally ahead of single Bs at 3.12%, and 2.81% return for CCCs. 

During the quarter there were two notable positive credit stories amongst out holdings. Worldpay, a payment tech business is being acquired by an investment grade rated company called Global Payments. As it is a strong conviction trade, we hold a concentrated position within the fund and benefited from a three- point pop in bond price on the back of this news. We’ve chosen to hold the position rather than take profit as we are being paid an attractive coupon and will reassess as we get closer to the closing date of the transaction.  

The other positive credit story is related to Chart Industries, a global manufacturer of engineered equipment servicing multiple market applications in energy and industrial gas. As the business is more on the cyclical side we hold a modest position in the Fund. The investment grade rated company, Flowserve announced an agreement to merge with Chart Industries, in a deal which is expected to close at the end of the year. The combination would address an entire life cycle for customers, from design through to aftermarket support. The latter has grown in recent years, offering sticky customer relationships and higher margins; the rating agencies have taken the news positively and bond ratings have been put on positive outlook.

We participated in a handful of new issues in both the US and European markets across the BB and B space.  Amongst the new credits added to the portfolio, we invested in QXO building products, Wolseley, Currenta Group and Urbaser. The rest of the credits were companies we were already familiar with or currently own in the portfolio (hence, already comforted by the company fundamentals.  

The rest of the activity in the quarter was centred around investing cash from fund inflows across existing holdings, ideas from our watchlist and also in bonds that had been beaten up (disproportionally, in our view) post-tariff related headlines. Our focus on idiosyncratic risk and the stock-picking choices we made all contributed to our positive performance this quarter.  
It is also worth noting the growth in the Fund during the period, with assets now above $200m. 

Outlook

At the start of the quarter we saw a shake-up in spreads offered in the high yield market on the back of Trump tariff headlines and speculation. We saw sectors, predominantly cyclical ones like autos, take a hit as the market was worried about the level of tariffs and the domino effect it would have across the supply chain, right through to the end product. There were some sectors impacted more than others, but we took advantage of what we deemed as some mis-pricing where bonds were sold down but fundamentals remained solid and spreads attractive, particularly in US dollar issues.

Since those turbulent few weeks, the market started to absorb the headlines and hope was restored that the tariffs wouldn’t be as bad as the market had originally thought. The global high yield market retraced its initial move down and is back to the tighter spreads we saw pre-liberation day. The next milestone in focus is the 90-day reciprocal tariff deadline on 9th July, this could potentially spark another round of volatility in the market, with the potential for a wider implication on global growth. The Fund has a good level of cash to take advantage of any investment opportunity that might present itself in a softer market. 

With the uncertain backdrop around markets over the last quarter, many investors have taken the flight to quality and invested in the higher quality parts of the high yield spectrum. This has benefitted our strategy as this is the part of the market we are already exposed to and continues to be our sweet spot.  

On the macro side, the market is thinking about the likelihood of a rate cut in the US by the end of the year. The focus has been on data releases which are currently indicating a more resilient economy than the market expected, giving less of a motive for the Fed to cut rates.  

Defaults in the high yield market remain low and below historical averages; we’ve seen a few isolated cases of distressed exchanges and restructuring. The level of defaults is increasing (skewed by select companies) but at a very modest pace, broadly indicating that high yield company balance sheets are in good shape and have been resilient facing current headwinds. The primary market has been open but fairly quiet till the latter part of the quarter. In recent weeks, primary issuance has ramped up across BB and B rating categories – most of the deals have been to refinance existing debt but we have come across a handful of deals including the funding of shareholder distributions, which is fairly aggressive. The deals were successfully done, at relative tight spreads not offering much of a new issue premium in some cases. This demonstrates how the demand for high yield bonds is strong, how companies are taking advantage of issuing bonds at favourable levels and how the high yield market overall is well supported by this positive technical. It is external ‘noise’ that is likely to be the cause of short-term spread widening. 

We take a longer-term view in investments in our portfolio and therefore are invested in companies that we believe can withstand bouts of market volatility and achieve a good level of return. We run a concentrated portfolio, where our position size reflects our level of conviction, we are index agnostic and our process means we are primarily invested in higher quality credits. The yield offered on the fund is 7.1%, which we believe is highly attractive from a risk/reward standpoint.  

Discrete years' performance (%) to previous quarter-end:

Past performance does not predict future returns

*Source: Financial Express, C5 share class, total return, net of fees and interest reinvested. As at 30.06.25. The primary share class for this Fund is in US dollars (B5) but we are showing the C5 sterling-hedged class to compare against the IA Sterling High Yield sector. Discrete data is not available for ten full 12-month periods due to the launch date of the portfolio. †While the managers of the Fund seek to outperform a leading Global High Yield ETF by 1.5% a year net of fees over rolling three years, this is not a formal objective. There can be no guarantees this will be achieved over the stated time period. The formal objective of the Fund can be found in the Prospectus.