The LO Asia Diversified High Yield fund has had a strong start to the year, up +3.83% YTD (as of end Feb 2025; USD NA share class) vs JACI HY benchmark returning +2.61% for the same period. At the time of writing, the fund returned +4.77% (as of 13th Mar 2025). This is after the fund closed 2024 strongly with a total return performance of +16.11% (gross) vs the JACI HY benchmark’s return of +15.18%.
During Feb, we added to India Infoline 2028 making it a High Conviction position within the fund at 3.3% weight. The firm is an established financial lender for 30 years across various financial products in India (mortgages, corporate finance, consumer finance) with stable management and strong institutional shareholder backing (ADIA and Fairfax are shareholders). The Reserve Bank of India has eased interest rates by 25 bps in 1Q25, and we see increasing room for the central bank to ease rates later this year and hence lifting growth and loan demand. The bonds currently yield over 8.5% for relatively short-dated 2028 paper, and we see this as an attractive low-volatility total return position.
Within India, we also increased our position in renewable energy producer (solar and biomass energy generation) SAEL India to a 2% weight (core; High Conviction position). Its bonds cheapened to above 8% owing to market volatility, despite being a secured and amortising bond with strong structural features. We believe much of such credit quality is very isolated from global cyclical and economic gyrations should we see a global or US led slowdown, as such firms are purely in electricity generation with bonds benefitting from the cash generation of the utility sector. Thus, providing true diversification and income generation.
Elsewhere, we also continued to increase our China exposure in a diversified way by purchasing new issues in Greentown China 2028 8.45% (subsidiary of China Communication – a Tier 1 SOE) and Beijing Capital 2028 7.15% (another China SOE out of Beijing). These new issues were heavily oversubscribed up to 10x their issued bond amount, making it challenging to get larger allocations. In the secondary market, we marginally added to our West China Cement 2026 position.
In sovereigns, we increased our position in Sri Lanka 2030 sovereign (macro-linked) bonds which we think offer an IRR of over 10%. In Emerging Markets adjacent to core Asia, we added to Turkey exposure via Limak Yenil ENRJ 2030 9.625% which is a renewable energy generation company, Akbank 2035 (callable) Tier II bonds at 7.875% and Turkiye Vakiflar Bankasi 2030 6.875% senior bonds.
We recycled our holdings in GLP Jun-2025 bonds which are maturing shortly at around 99c, given the low remaining upside potential. We also sold out of Softbank subordinated (2027 call) bonds at less than 7% yield as it has risen to close to par, as well as HK’s Lifestyle International Jun-2025 bonds also just shy of par. This allows us to recycle capital at a faster speed and achieve a higher IRR on our capital in the fund.
The portfolio remains well anchored with a YTW of 9.2%, with 83 issues and 52 credits. The average rating for the fund is BB- currently. We continue to maintain a small duration overweight (3.1 years) versus the benchmark at 2.5 years, and expect outperformance from a total return and relative perspective given attractive carry and spread compression potential in our credits.
Thank you for your continued support.
DHIRAJ BAJAJ
On behalf of LOIM Asia Fixed Income team
