CQS New City High Yield (NCYF)

CQS New City High Yield Fund (NCYF) offers a very high yield, 8.8% at the time of writing, along with a track record of growing the dividend for 19 consecutive years. One more annual increase and the company will be eligible for the AIC’s Dividend Hero accolade, which would be an exceptional achievement for a bond fund. In fact, no other bond fund in the AIC universe has delivered more than 10 years of consecutive dividend growth.

The strategy of the managers, Ian ‘Franco’ Francis and Darren Toner, is to focus on the smaller, more specialised or less liquid issues. These require greater knowledge and experience to analyse, and are usually unrated by ratings agencies, falling outside of the remit of many mainstream, institutional bond investors.

Franco is stepping away from management of the trust next May, with Darren to take over full control at that point. Both managers have many years’ experience in the specialist areas of the credit market in which NCYF is invested, with Darren being head of the global high yield and financials teams at CQS. As such, we expect no meaningful change to the approach, which will remain concentrated on the more complex parts of the high yield space including financials and convertibles, and into the smaller and less liquid issues. This approach allows the portfolio to generate a high yield, but requires excellent stock selection as trading is low and the portfolio concentrated.

Healthy revenue reserves give the managers confidence they can handle any market-wide decline in yields, just as the trust successfully did during the 2011-2013 period of low interest rates, although we note the immediate threat of this has declined due to the conflict in the Gulf.

NCYF’s success from an income perspective is reflected in a consistent premium rating, the board issuing shares at or above a 5% premium in order not to dilute existing investors’ returns. The premium at the time of writing has risen to 5.7%.