One of the curiosities of 2023 was that, while most of the asset classes that are expected to suffer when recession is anticipated behaved according to script and dropped in value, high-yield bonds proved resilient.

The IA Sterling High Yield Bond sector returned 11.1 per cent in the 2023 calendar year, comfortably outperforming the IA Global Government Bond sector in that time, as the table below shows.

High-yields bonds of course offered the benefits of an income level against the tide of inflation, but come with the extra credit risk, presenting investors with the dilemma that probably defined 2023: whether to be more worried about inflation, or economic growth.

Given the recession never really came and economic data since has been quite positive, intuitively, high yield bonds should be more interesting now than then.

But a glance at our proprietary Asset Allocator database reveals the wealth managers we monitor have actually reduced their exposure to high yield funds over the past year, from 2.2 per cent to 1.8 per cent.

In terms of government bond fund exposure, thats risen from 7.2 per cent to 8 per cent over the same period. 

The house with the largest exposure to high-yield bonds in June 2024 is Tacit with 15 per cent, followed by Liontrust with just over 6 per cent, while a range of those we cover have zero in the space, including Progeny, Rathbones and Schroders. 

In contrast, Rathbones has the largest exposure in its Balanced fund to government bonds, at 17 per cent. Downing has the second-largest exposure to government bonds.

At the other end of the distribution, both Brooks Macdonald and Premier Miton are keeping the gilt dealers of Threadneedle Street working for their supper this summer, as they have zero allocated to government bond funds. 

The most popular high-yield bond fund among the allocators we cover is Axa US Short Duration High Yield, which appears in just four of the mandates we monitor, as does Man GLG High Yield Opportunities.

The latter is run by Mike Scott and is the best performing High Yield fund over five years and this year to date. 

On a five-year view it has returned a marmalade-dropping 44 per cent, compared with 15 per cent for the sector average. 

A glance at where he is invested reveals the largest holdings to be financials. Some 44 per cent of the capital is deployed in the UK market, and just 12 per cent in the US, representing a deep underweight to the latter.