High Yield Bonds: The importance of being prudent and patient

Negotiations with major trading partners such as China and the EU are ongoing, and the only finalised deal so far is with the UK. Even if agreements are reached, some residual tariffs may remain, as seen in the UK’s experience. There’s also the risk that negotiations could collapse. While these scenarios could hinder economic growth, the market seems to be acting as if the tariff risks have already disappeared.

Additionally, there is a possibility that the U.S. government could shut down over the summer unless the debt ceiling is raised and a new budget is approved by Congress. Investors appear to interpret an expansionary budget as a positive for risk markets, as increased government spending injects liquidity into the system. However, this could stoke fears of an unsustainable deficit, and the rise in long-end Treasury yields this year reflects those concerns. Higher yields directly increase borrowing costs, potentially slowing economic growth.

Given the political and macroeconomic tail risks under Trump’s presidency, we believe high yield spreads are tight relative to the level of uncertainty. The current complacency among investors presents an opportunity for active managers like us to identify and exploit market mispricings. Today’s high yield market includes segments that we find expensive from a spread perspective and thus less attractive. Conversely, sectors facing negative sentiment, such as energy, offer potential for contrarian trades. The rise in oil prices due to the ongoing Israel-Iran conflict could give a fillip to the sector.

We also see value in the U.S. healthcare sector. Toward the end of last year, regulatory and political concerns triggered a selloff in the sector’s bonds. As political tensions ease, the attractiveness of healthcare bonds could rise. At the same time, CCC-rated bonds and cyclical sectors are likely to be more vulnerable in the event of a sharp economic downturn.

We believe Europe remains compelling relative to the U.S. Investors are highly bullish on U.S. risk markets despite the ongoing trade war. Meanwhile, Europe’s macroeconomic environment is improving, supported by fiscal stimulus and declining interest rates.

Good returns for HY normally come from current yields

Global High Yield Markets: 12 months return distribution when yield to maturity has been between 7% and 8%

Although high yield bond spreads are towards the tight end of historical ranges, the all-in yield remains relatively high, and this coupon income provides the prospect for continued steady returns. Relative to equities, high yield provides advantages such as low duration, seniority in the capital structure, and relatively low volatility. Even so, our guiding principles at this time are “prudence” and “patience”, as investor complacency remains widespread, with many discounting the potential for negative developments.

In today’s market, credit selection is more important than ever. With uncertainty around future conditions, identifying bonds that offer a strong balance between yield and risk requires discipline and a clear understanding of value. As markets shift, maintaining a selective and thoughtful approach can help navigate periods of volatility.

¹ Trump Always Chickens Out

Strategy specific risks

• Share Class Hedging Risk - The share class hedging process can cause the value of investments to fall due to market movements, rebalancing considerations and, in extreme circumstances, default by the counterparty providing the hedging contract.
• Interest Rate Risk - The Strategy can invest in assets whose value is sensitive to changes in interest rates (for example bonds) meaning that the value of these investments may fluctuate significantly with movement in interest rates.e.g. the value of a bond tends to decrease when interest rates rise
• Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
• Contingent convertible bonds - The Strategy may invest in contingent convertible bonds. These instruments may experience material losses based on certain trigger events. Specifically these triggers may result in a partial or total loss of value, or the investments may be converted into equity, both of which are likely to entail significant losses.
• Credit Risk - The issuer of a bond or a similar investment within the Strategy may not pay income or repay capital to the Fund when due.
• Derivative risk - the Strategy may use derivatives to reduce costs and/or the overall risk of the Fund (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the Fund.
• Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the Strategy.
• Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the Strategy's assets.
• Sub investment grade bonds - The Strategy may invest a significant portion of its assets in securities which are those rated below investment grade by a credit rating agency. They are considered to have a greater risk of loss of capital or failing to meet their income payment obligations than higher rated investment grade bonds.
• Charges from capital - Some or all of the Strategy’s charges are taken from capital. Should there not be sufficient capital growth in the Fund this may cause capital erosion.

Important information

This presentation is intended for investment professionals and not for the benefit of retail investors.

This presentation is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.

Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. Awards and ratings should not be taken as a recommendation.

The views expressed are those of the presenter at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.

Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.

For marketing purposes of this document, LATAM is defined as the following countries:

Argentina

Legal Notice for Residents in the Republic of Argentina

This document includes a private invitation to invest in securities. It is addressed only to you on an individual, exclusive, and confidential basis, and its unauthorised copying, disclosure, or transfer by any means whatsoever is absolutely and strictly forbidden. [Jupiter Asset Management Limited / Jupiter Unit Trust Managers Limited] will not provide copies of this document, or provide any kind of advice or clarification, or accept any offer or commitment to purchase the securities herein referred to from persons other than the intended recipient. The offer herein contained is not a public offering, and as such it is not and will not be registered with, or authorised by, the applicable enforcement authority. The information contained herein has been compiled by [Jupiter Asset Management Limited / Jupiter Unit Trust Managers Limited], who assumes the sole responsibility for the accuracy of the data herein disclosed.”

Brazil

Legal Notice for Residents in Brazil

The Funds may not be offered or sold to the public in Brazil. Accordingly, the Funds have not been and will not be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor have been submitted to the foregoing agency for approval. Documents relating to the Funds, as well as the information contained therein, may not be supplied to the public in Brazil, as the offering is not a public offering of Funds in Brazil, nor used in connection with any offer for subscription or sale of Funds to the public in Brazil.

Chile

Aviso Legal para Residentes en Chile

“ESTA OFERTA PRIVADA SE INICIA EL DÍA SEGUN LO ESTABLECIDO EN EL TITULO Y SE ACOGE A LAS DISPOSICIONES DE LA NORMA DE CARÁCTER GENERAL Nº 336 DE LA SUPERINTENDECIA DE VALORES Y SEGUROS, HOY COMISIÓN PARA EL MERCADO FINANCIERO. ESTA OFERTA VERSA SOBRE VALORES NO INSCRITOS EN EL REGISTRO DE VALORES O EN EL REGISTRO DE VALORES EXTRANJEROS QUE LLEVA LA COMISIÓN PARA EL MERCADO FINANCIERO, POR LO QUE TALES VALORES NO ESTÁN SUJETOS A LA FISCALIZACIÓN DE ÉSTA; POR TRATAR DE VALORES NO INSCRITOS NO EXISTE LA OBLIGACIÓN POR PARTE DEL EMISOR DE ENTREGAR EN CHILE INFORMACIÓN PÚBLICA RESPECTO DE LOS VALORES SOBRE LOS QUE VERSA ESTA OFERTA; ESTOS VALORES NO PODRÁN SER OBJETO DE OFERTA PÚBLICA MIENTRAS NO SEAN INSCRITOS EN EL REGISTRO DE VALORES CORRESPONDIENTE.”

Colombia

Legal Notice for Residents of Colombia

This is not an offer of securities in Colombia or to any Colombian national, citizen or resident of Colombia or a corporation or partnership organized under the laws of Colombia or having a principal place of business in Colombia (“Colombian Residents”). All information, statistics, data and projections provided herein (the “Information”) along with the prospectus of each one of the funds (the “Prospectus”) are not intended for distribution, promotion or marketing purposes to Colombian Residents. Both the Information and Prospectus: (i) have been drafted, prepared and listed for investment professionals and are not intended to be addressed to any individual investor or to the general public in Colombia; and (ii) does not constitute a public offer under the current provisions of Colombia as they are not being offered or addressed to an undetermined amount of people or to more than one hundred individually identified potential investors. The Information and Prospectus listed herein are not an invitation tosubscribefor units in funds or any other fund managed by Jupiter (the “Funds”). Funds’ units mentioned in this Prospectus have not been, and will not be, registered under any applicable securities laws in Colombia. Therefore, they may not be publicly offered in Colombia or to or for the benefit of a Colombian Resident (as defined above). The Funds may not be distributed, promoted or marketed in Colombia or to Colombian residents, unless such promotion and marketing is performed by an authorized distributor in compliance with Part 3 of Decree 2555 of 2010 and any other applicable rules and regulations related to the promotion of foreign funds in Colombia as amended from time to time. The Information and Prospectus is listed for general guidance only, and it is the responsibility of any person or persons in possession of this documentation to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Potential applicants for Fund’s units should inform themselves of any applicable legal requirements, exchange control regulations and applicable taxes in the countries of their respective citizenship, residence Costa Rica

Costa Rica

Legal Notice for Residents of Costa Rica

This is an individual and private offer which is made in Costa Rica upon reliance on an exemption from registration before the General Superintendency of Securities (“SUGEVAL”), pursuant to article 6 of the Regulations on the Public Offering of Securities (“Reglamento sobre Oferta Pública de Valores”). This information is confidential, and is not to be reproduced or distributed to third parties as this is NOT a public offering of securities in Costa Rica. As this is NOT a public offering of securities under the definition set forth in the Securities Market Statute (“Ley Reguladora del Mercado de Valores”), the product being offered is not intended for the Costa Rican public or market and neither is registered or will be registered before the SUGEVAL and, accordingly, it is not covered by the supervision, disciplinary regime and protections afforded to local investors by the Securities Market Statute with regards to the public offerings of securities, and it is not registered in the National Registry of Securities and Intermediaries (“Registro Nacional de Valores e Intermediarios”). As this is a private offering of securities, the investor will not have access to ongoing reporting required by the regulations set forth by the National Council for Supervision of the Financial System (“CONASSIF”) and the SUGEVAL. As this is NOT a public offering of securities registered in the National Registry of Securities and Intermediaries, the investor will not be able to trade the product in the secondary market.

Mexico

Legal Notice for Residents of Mexico

The securities have not been and will not be registered with the National Registry of Securities, maintained by the Mexican National Banking and Securities Commission and, as a result, may not be offered or sold publicly in Mexico. The fund and any underwriter or purchaser may offer and sell the securities in Mexico on a private placement basis to Institutional and Accredited Investors pursuant to Article 8 of the Mexican Securities Market Law.

NB: Please note that if securities in a fund are offered discreetly and on a one-to-one basis to Mexican investors, from outside of Mexico, with no intent to attract a large number of Mexican investors, then no legend related to Mexico should be added. Otherwise use legend above.

Peru

Legal Notice for Residents of Peru

The funds have not been registered before the Superintendenciadel Mercado de Valores(SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is only for the exclusive use of institutional investors in Peru and is not for public distribution.

Uruguay

Legal Notice for Residents of Uruguay

The sale of the securities qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The securities must not be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The securities are not and will not be registered with the Financial Services Superintendency of the Central Bank of Uruguay. The securities correspond to investment funds that are not investment funds regulated by Uruguayan law 16,774 dated September 27, 1996, as amended.

For US Offshore

The funds have not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person, unless the securities are registered under the Act, or an exemption from the registration requirements of the Act is available. A US Person is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business.

Issued by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier.

No part of this presentation may be reproduced in any manner without the prior permission of JAM and JAMI.

Chile & US offshore

Important information:

This presentation is intended for investment professionals and not for the benefit of retail investors.

This presentation is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.

Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. Awards and ratings should not be taken as a recommendation.

The views expressed are those of the presenter at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.

Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.

Aviso Legal para Residentes en Chile

“ESTA OFERTA PRIVADA SE INICIA EL DÍA SEGUN LO ESTABLECIDO EN EL TITULO Y SE ACOGE A LAS DISPOSICIONES DE LA NORMA DE CARÁCTER GENERAL Nº 336 DE LA SUPERINTENDECIA DE VALORES Y SEGUROS, HOY COMISIÓN PARA EL MERCADO FINANCIERO. ESTA OFERTA VERSA SOBRE VALORES NO INSCRITOS EN EL REGISTRO DE VALORES O EN EL REGISTRO DE VALORES EXTRANJEROS QUE LLEVA LA COMISIÓN PARA EL MERCADO FINANCIERO, POR LO QUE TALES VALORES NO ESTÁN SUJETOS A LA FISCALIZACIÓN DE ÉSTA; POR TRATAR DE VALORES NO INSCRITOS NO EXISTE LA OBLIGACIÓN POR PARTE DEL EMISOR DE ENTREGAR EN CHILE INFORMACIÓN PÚBLICA RESPECTO DE LOS VALORES SOBRE LOS QUE VERSA ESTA OFERTA; ESTOS VALORES NO PODRÁN SER OBJETO DE OFERTA PÚBLICA MIENTRAS NO SEAN INSCRITOS EN EL REGISTRO DE VALORES CORRESPONDIENTE.”

For US Offshore

The funds have not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person, unless the securities are registered under the Act, or an exemption from the registration requirements of the Act is available. A US Person is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business.

Issued by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier.

No part of this presentation may be reproduced in any manner without the prior permission of JAM and JAMI.