We permit the publication of our auditors’ report, provided the report is published in full only and is accompanied by the full financial statements to which our auditors’ report relates, and is only published on an access-controlled page on your website, to enable users to verify that an auditors’ report by independent accountants has been commissioned by the directors and issued. Such permission to publish is given by us without accepting or assuming any responsibility or liability to any third party users save where we have agreed terms with them in writing.

Our consent is given on condition that before any third party accesses our auditors’ report via the webpage they first document their agreement to the following terms of access to our report via a click-through webpage with an 'I accept' button. The terms to be included on your website are as follows:

I accept and agree for and on behalf of myself and the Trust I represent (each a "recipient") that:

  1. PricewaterhouseCoopers LLP (“PwC”) accepts no liability (including liability for negligence) to each recipient in relation to PwC’s report. The report is provided to each recipient for information purposes only. If a recipient relies on PwC’s report, it does so entirely at its own risk;
  2. No recipient will bring a claim against PwC which relates to the access to the report by a recipient;
  3. Neither PwC’s report, nor information obtained from it, may be made available to anyone else without PwC’s prior written consent, except where required by law or regulation; and
  4. PwC’s report was prepared with Hermes Property Unit Trust's interests in mind. It was not prepared with any recipient's interests in mind or for its use. PwC’s report is not a substitute for any enquiries that a recipient should make. The financial statements are as at 25 March 2017, and thus PwC’s auditors’ report is based on historical information. Any projection of such information or PwC’s opinion thereon to future periods is subject to the risk that changes may occur after the reports are issued and the description of controls may no longer accurately portray the system of internal control. For these reasons, such projection of information to future periods would be inappropriate.
  5. PwC will be entitled to the benefit of and to enforce these terms.
I accept

1. Select your country

  • United Kingdom
  • Austria
  • Australia
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Iceland
  • Ireland
  • Italy
  • Luxembourg
  • Netherlands
  • Norway
  • Singapore
  • Spain
  • Sweden
  • Switzerland
  • USA
  • Other

2. Select your investor type

  • Financial Advisor
  • Discretionary Investment Manager
  • Wealth Manager
  • Family Office
  • Institutional Investor
  • Investment Consultant
  • Charity, Foundation & Endowment Investor
  • Retail Investor
  • Press
  • None of the above

3. Accept our terms and conditions

By clicking Proceed I confirm I have read the important information and agree to the terms of use.


The Hermes Investment Management website uses cookies to remember your preferences and help us improve the site.
By proceeding, you agree to cookies being placed on your computer.
Read our privacy and cookie policy.

Falling commodities change the face of the high yield market

Home / Perspectives / Falling commodities change the face of the high yield market

Fraser Lundie, CFA, Co-Head of Credit and Senior Credit Portfolio Manager
14 August 2015

The plunge in commodity prices is driving significant changes in the risk profile, and investment opportunities within, the global high-yield credit market, says Fraser Lundie, Co-Head of Credit and Senior Portfolio Manager.

High-yield evolution: It has not been a quiet summer for investors in high yield credit markets. The main reason for this has been the continued stress in commodity-related sectors. The commodity price falls of the last 12 months have been well documented, as have the consequences for equity and bond prices. However, something that has perhaps been underappreciated by investors has been the rapidly evolving shape of the global high yield market.

Heightened commodity risk: A combination of sovereign-related credit downgrades, in pressured countries such as Brazil and Russia, and those that are company-specific, in names such as Transocean, has fuelled growth in the basic industry and energy sectors of the high yield market. The changing composition of the BofA Merrill Lynch Global High Yield Index highlights the significant increase in the risk contributions from these sectors compared to a year ago (see figure 1). This is not adequately reflected by the notional market weight of these issuers, as this does not measure duration or credit quality. However, using duration times spread (DTS) takes these elements into account. On this measure, energy and basic industry together provide 36.7% of the risk in the market – a 40% jump from a year ago.

Figure 1. The basic industry and energy sectors now contribute 40% more risk compared to a year ago

Graph_Credit Blog

Source: BAML, Hermes Credit

Divergent performance: These sectors have underperformed, both in equity and credit, in recent weeks – with resultant outflows from high yield credit funds. However, we expect diverging performance within these sectors from here, as stressed companies begin to engage in much more bondholder-friendly corporate activity at the expense of near-term equity performance. For example, both Chesapeake Energy and Linn Energy decided to eliminate dividend payments and aggressively cut capital expenditure – with the latter going a step further and opting to buy back up to $650 million of its own bonds in the open market during Q2 2015. Linn’s stock fell by more than 25% on the announcement, while its 2020 bonds bounced 3-5 basis points (bps). Chesapeake’s share price was also down 10% on this action, but its bonds stabilised after experiencing significant stress in prior weeks as natural gas prices continued to sell off. These actions may still not be enough to ward off the troubles faced by these companies amid weak commodity prices, but they indicate what is likely to become a trend.

Flexibility required: This change reinforces the importance of accessing the high yield market through a truly global mandate. Look at the European high yield market: it currently has a negligible exposure to energy, a major reason why the market currently offers a yield of 4.35% to the 7.25% of the global market. Navigating in and out of such sectors and geographies requires nimbleness and flexibility.

Share this post:
Fraser Lundie, CFA Co-Head of Credit and Senior Credit Portfolio Manager Fraser joined Hermes in February 2010 and is Co-Head of Credit and lead manager on the Hermes range of credit strategies. Prior to this he was at Fortis Investments, where he was responsible for European high yield credit. Fraser graduated from the University of Aberdeen with an MA (Hons) in Economics; he earned an MSc in Investment Analysis from the University of Stirling and is a CFA charterholder. In 2017, Fraser joined the board of CFA UK, a member society of the CFA Institute. Having previously featured in Financial News’s ‘40 Under 40 Rising Stars of Asset Management’, an editorial selection of the brightest up-and-coming men and women in the industry, in 2015 Fraser was named as one of the top 10 star fund managers of tomorrow by the Daily Telegraph. In 2016, Citywire Americas named Fraser number one in their global high yield manager review, and InvestmentEurope and Investment Week both named the Hermes Multi Strategy Credit Fund top global bond fund at their respective 2017 Fund Manager of the Year Awards. CFA® is a trademark owned by the CFA Institute.
Read all articles by Fraser Lundie, CFA

Find posts by author

  • Alex Knox, ACA
  • Andrew Jackson
  • Andrew Parry
  • Andrey Kuznetsov, CFA
  • Audra Stundziaite
  • Claire Gavini
  • Dr Michael Viehs
  • Elena Tedesco
  • Emeric Chenebaux
  • Eoin Murray
  • Gary Greenberg
  • Geir Lode
  • Geoffrey Wan, CFA
  • Hamish Galpin
  • Harriet Steel
  • Ilana Elbim
  • Jonathan Pines, CFA
  • Joseph Buckley
  • Louise Dudley
  • Mark Sherlock, CFA
  • Martin Todd
  • Michael Russell, CFA
  • Michael Vaughan
  • Mitch Reznick, CFA
  • Neil Williams
  • Nick Spooner
  • Nina Röhrbein
  • Patrick Marshall
  • Peter Hofbauer
  • Philip Nell
  • Saker Nusseibeh
  • Silvia Dall’Angelo
  • Tatiana Bosteels
  • Tim Crockford
  • Tim Goodman
  • Tommaso Mancuso
  • Yasmin Chowdhury

Find posts by category

  • credit