OP-High Yield America

OP-High Yield America mainly invests its assets in bonds denominated in US dollars and issued by US companies whose credit rating is low. Since the fund invests in bonds of companies with low credit ratings, repayment is estimated to be subject to above-average risks. To counter this uncertainty, these bonds’ yield potential is significantly higher than that of government bonds or loans issued by companies with high credit ratings.

Fixed-income investments are considered a good method to lower a portfolio's total risk. OP-High Yield America offers good yield potential to a risk-tolerant investor. Although the repayment of high yield bonds involves risk, as an investment vehicle they carry lower risk than the equity market. Since the fund hedges its non-euro investments against currency risks as fully as possible, the fund unit holder does not have to bear the currency risk. OP-High Yield America is mainly recommended to an investor who intends to redeem his/her units after four years at the earliest.

June represented an exceptionally weak month for risk assets, with high yield registering its weakest month since the onset of the pandemic in early 2020. A narrative around recession (or at least a form of stagflation) has taken firm footing in the market, and it appears to be the institutional consensus. Concerns around headline inflation drove weakness early in the month, and performance continued to remain volatile with a negative skew.

Equity performance was particularly weak, with the S&P 500 down over 8% and now firmly in bear market territory (down 20% for the year). The market inflection point appeared to be June 9th, when the Consumer Price Index (CPI) was released and registered a surprise 8.6% headline inflation figure for May, presaging a 75 bps interest rate hike from the Federal Reserve, up from the widely expected 50 bps hike. That 75 bps hike was the third hike this year and the largest since 1994. High yield bonds generated -673 bps in total return, as the faster-than-expected pace of hikes pushed up 10-year Treasuries from 2.85% at the end of May to a local high of 3.48% by mid-June before ending June at 3.01%, and high yield spreads widened from 406 bps at the end of May to 569 bps at the end of June.

We have discussed all year the global central bank pivot toward hawkishness (with the exception of the Japanese central bank), and it certainly appears there was no letup in that hawkishness colored market sentiment once again this month. As we noted last month, the expected aggressiveness of the response has been spurred by continued high inflation prints. April’s headline consumer price index (CPI) was in line at 0.3% increase month-over-month, up 8.3% year-over-year, while May was up 8.6%, higher than expected. It is worth noting that the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index, came in with a 6.3% year-to-date gain, given that indicator’s lower weighting of housing costs and a more modest rate of medical care inflation, but still well above the Fed’s 2% target. Employment has also remained strong.

OP-High Yield America is a long-term bond fund which mainly invests its assets in bonds denominated in US dollars and issued by US companies whose credit rating for long-term debt is BBB–CCC- or comparable. Fund assets may also be invested to a limited extent in non-rated issuers' bonds. The share of these investments typically varies between 65 and 100%. The Fund hedges its non-euro investments against currency risks as fully as possible. The modified duration of the Fund, a measure of the price sensitivity of a fixed-income investment to interest rate movements, is typically 2.5–5.0, which means that the Fund value will decrease by 2.5–5.0 percent if interest rates increase by one percentage point. If interest rates fall, the Fund’s value increases correspondingly.

The Fund's investments are mainly direct fixed-income investments. The Fund may use derivative instruments in order to hedge against adverse market movements, to replace direct investments and to otherwise promote effective portfolio management. The Fund may also invest in derivative contracts intended for credit risk transfer. The Fund diversifies its investments broadly across various issuers' bonds. The Fund normally invests in some 100–120 issuers' fixed-income instruments.

The Fund’s benchmark index is Barclays US High Yield - US Corporate High Yield (EUR-Hedged). With active investing, the Fund seeks to outperform its benchmark index in the long term. The Fund mainly takes notable active risk and it may differ significantly from the composition, weights and risk level of the benchmark index.

The Fund promotes environmental and social characteristics and, to ensure it, uses environmental, social and governance (ESG) analysis and excludes certain investments. 

Exclusion: The Fund excludes from its active direct investments controversial weapon manufacturers, mining companies producing thermal coal, power companies using thermal coal, tobacco companies, and companies that have breached international standards and where engagement has been unsuccessful.  The list of exclusions is public. In addition to general exclusion rules, the Fund does not invest in companies whose principal business is in unconventional oil and gas extraction.

Use of ESG data in the investment analysis: ESG factors are considered in the investment process with the help of data by an external ESG service provider and the ESG tool developed internally by OP Asset Management. Considering ESG factors in the investment process means, for example, that the risks and opportunities related to the environment, society and governance are made transparent using selected indicators from each area. 

Violations of international standards: The Fund is screened regularly for non-compliances with international standards. In the event that a non-compliance is detected, an influencing process is begun with the company in question. The aim is to make non-compliant companies change their practices and begin to comply with international standards in their operations. If influencing proves fruitless, the company may be removed from the Fund portfolio and placed on the exclusion list.

Minimum share of sustainable investments: In accordance with the minimum amount stated below, the Fund allocates investments into companies whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainability factors or objectives. Sustainable investments are determined using OP Asset Management’s analysis model which is based on an external service provider’s SDG and sustainability data.

Assessing good governance practices: Analysing the target company’s governance is an important part of the investment process. To us, good governance is a key foundation for any company’s financial success, regardless of sector. When assessing governance, some of the areas considered include the appropriateness of the target company’s administrative organisation, the target company’s actions in relation to its personnel, and the target company’s rewarding and taxation practices. In assessing good governance, we use the analysis of third-party service providers and our own qualitative analysis if no external data is available. We screen the funds regularly to check them against the criteria of good governance. Minimum limits apply for these criteria. 

As our owner-customer, saving and investing is especially worthwhile thanks to the excellent benefits you receive.

Your benefits when investing in funds or through insurance:

• Buy and sell almost all OP mutual funds with no fees.*
• You earn 0.35% OP bonuses from mutual fund and insurance assets.** 
• Begin saving through insurance free of charge. 
• Switch between investments, invest additional funds and change your payment and investment plan for OP Unit-linked Insurance and OP Savings Agreement free of charge in our digital services.  

Your benefits in equity and ETF investing:

• Open an equity savings account or book-entry account free of charge.
• You get a discount on equity trading and a 1% fee ceiling when trading in Finnish listed companies through a book-entry account The discounts apply in digital services.
• Get access to free stock picks and analysis.
• Get a discount on the service packages for savers and investors:
  Equity savings account: 
  Saver: €0/month (normally €2.99/month)
  Investor: €9.99/month (normally €14.99/month)
  Book-entry account: 
  Saver: €0/month (normally €2.99/month)
  Investor: €0/month (normally €5.39/month)

Other benefits:

• Only owner-customers can invest in Profit Shares.

Remember to make use of all benefits: