Enhanced Yield Fund positioned for European revival

Enhanced Yield Fund positioned for European revival

Opportunities in corporate bonds emerging amid signs of life in EU growth.

PM Capital’s Enhanced Yield Fund has added several European corporate bonds to its portfolio, believing the European Union economy is turning a corner.

In June quarter 2025, the Enhanced Yield Fund invested in bonds issued by Nexans, a manufacturer and installer of electric cables, and Vallourec, a pipe manufacturer. Nexans and Vallourec feature later in this PM Capital Insight.

The Fund has also increased its exposure this year to bonds issued by European banks, such as Lloyds Bank and HSBC Holdings, and is assessing opportunities in bonds issued by European defence companies.

By region, 15% of the Fund is allocated to Europe and the United Kingdom¹ – a figure we expect to rise over the next 5-10 years as more companies in the EU potentially benefit from industry restructuring and higher public spending.

PM Capital’s view – reflected in its debt and equity investment strategies – is that the EU economy could be entering a new long-term phase of economic growth after years of low and even negative interest rates this decade.

As geopolitical risks rise, Germany, France and other EU countries are stimulating their economies with higher planned expenditure on infrastructure and defence spending. Germany, for example, in March 2025 announced a €500 billion fiscal package to finance infrastructure and clean-energy investments.²

In defence, NATO countries have agreed in principle to increase direct military spending to 3.5% of their GDP by 2035, in response to President Trump’s demand for US allies to do more on defence. An additional 1.5% of GDP is required for defence-related spending.³

In trade, higher US tariffs on Chinese imports could encourage Chinese manufacturers to pivot to European and other markets, potentially stimulating China-Europe trade and further aiding Europe’s economic revival.

European opportunities

As economic ‘green shoots’ in Europe emerge, the Enhanced Yield Fund is identifying more opportunities in bonds issued by high-quality European-based organisations, at potentially attractive yields.

The Fund searches global markets for best-in-class businesses at ‘anomaly’ prices. We seek bonds that pay attractive yields, issued by organisations with strong balance sheets, leading market positions and stable revenues.

Within Europe, the Fund prefers companies that sell into global markets, operate in industries boosted by broad geopolitical and macroeconomic trends, and have the balance sheet and market position to benefit from EU recovery.

We are wary of European organisations that require specific EU policy choices or are leveraged to specific technologies.

Two recent investments by the Fund, Nexans and Vallourec, fit our criteria for EU-based investments:

1. Nexans

The French multinational company is a leading global manufacturer and installer of electrical cables, ranging from premium wiring for local schools and office towers to high-voltage underwater cables, spanning hundreds of kilometres deep below the surface.

As the world becomes more electrified, every part of that process requires cables. Extensive intellectual property and experience are required in cable installation of this complexity. Nexans has a long, successful record in its field and a strong balance sheet.

Our investment in Nexans was purchased at a yield of approximately 6.5% and has already contributed meaningfully to Fund performance this year.

2. Vallourec

Vallourec, another French-based company, is a leading global manufacturer of pipes, particularly for higher-end markets that deal with corrosive materials and difficult locations, like deep underwater or underground. The company provides a technologically-complex product and is a market leader in patents and design success in its field.

PM Capital believes the energy transition will be a dominant theme for decades, requiring gas and oil in the interim, alongside renewables, to meet demand and offset energy intermittency.

During that transition, every new project will require tubes, as will hydrogen and other emerging energies - a demand Vallourec could be well-placed to meet.

The company has a strong balance sheet, with essentially no debt. In addition, Vallourec has announced several recent contract wins and operational gains.

The Fund purchased Vallourec at an initial yield of around 6.75%. Like Nexans, Vallourec has already contributed to the Fund’s performance this year.

Conclusion

The Fund’s rising allocation to European corporate bonds, reflected through recent investments in Nexans, Vallourec and other European-based organisations, reflects its strategy to identify high-quality, undervalued assets.

The Fund continues to capitalise on volatility to invest in out-of-favour investment themes. Europe is an example. As the market focuses on the EU’s current sluggish economic growth, the foundations for a potential recovery are strengthening.

An EU economic revival, however, may take more than a decade to play out fully, with potential setbacks along the way. That will require a patient, long-term approach, an ability to withstand short-term market ‘noise’ and an eye on value – hallmarks of the Enhanced Yield Fund and its award-winning approach.⁴

About the author

David Murray is a Portfolio Manager at PM Capital, primarily focusing on its fixed income business

More information on PM Capital’s Enhanced Yield Fund is available here.