Event Voice: Your Questions Answered by Mirabaud Asset Management at Investment Week Funds to Watch
Why would you describe this fund as a 'one to watch' and how could the strategy work in investors' portfolios?
We bring a high conviction, pure-play focus to global convertibles. We take a highly active approach, so the strategy becomes more sensitive to equities or bonds depending on the environment, whilst fully integrating environment, social and governance principles into the investment process to maximise convexity.
Convertibles combine characteristics of equities and bonds, providing unique opportunities for managing risk and enhancing returns. However, given their distinct nature, investors cannot replicate the characteristics and advantages of convertibles by simply combining a portfolio of equities and bonds.
The hybrid characteristics make convertibles a compelling rationale to be considered as a strategic allocation in order to help pursue a lower-volatility exposure to markets at an overall portfolio level, and well suited to investors looking across equities and fixed income.
Convertibles are not perfectly correlated with either stocks or bonds, their addition to a portfolio as part of a broad asset allocation strategy can help to dampen overall volatility. Convertibles tend to be more highly correlated with equities and high yield bonds, while offering low correlations to investment grade bonds. Furthermore, as convertibles don't move in perfect unison with stocks and bonds, their addition to a portfolio can help to create more dispersion of returns.
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
Our focus for the strategy is to create a focused, diversified portfolio of global convertibles that provides a favourable upside and downside profile for investors relative to the global equity or bond markets.
As a starting point, the strategy takes a high conviction approach. This results in a concentrated portfolio of around 50 positions, with a high percentage of securities (77%) in off-benchmark positions. Our high conviction approach also translates into a portfolio that is invested solely in convertible bonds - there are no synthetic securities, creating a clear and transparent strategy. Furthermore, our focus is on finding convertibles with a balanced profile, which currently represent over two thirds of the strategy. This approach allows us to capture upside in rising markets while limiting downside in falling markets.
An integral part of the strategy's approach is its focus on integrating environmental, social and governance principles into the investment process, which we believe amplifies convexity - retaining upside exposure when markets rally and providing more resiliency in down markets.
The strategy is managed by a dedicated convertibles team that is part of our Global Fixed Income team. The team brings over 60 years of combined experience in convertibles, with expertise in managing this asset class across all phases of the credit cycle. They also bring a combination of trading and fundamental experience - the latter is key when they conduct bottom-up research into opportunities and apply their own, proprietary rating methodology so they can confidently invest in securities that don't have a credit rating.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
One of the largest areas of opportunity is the increase in new issuance. 2020 saw $138bn of new issuance, which is an all-time high. New issuance creates the opportunity for us to access new names across a broad range of industry sectors to replace existing names that have become too ‘bond-like' or too ‘equity-like. We believe this flexibility is key given our focus on maintaining a balanced profile and 62% of the Fund reflects new issues that we participated in during 2020 and 2021 to date. The outlook remains supportive because we expect that companies will accelerate their capital raising efforts this year to position for the ongoing pandemic and to plan for future growth
We have also expanded the strategy's regional diversity. The unprecedented amounts of central bank stimulus will lead to a weaker US dollar, which historically has provided powerful tailwinds for non-US companies. As a result, we have increased allocations to Asia, including Japan, which are now overweight in contrast to the US and Europe.
Finally, we continue to find value in smaller issuers. Consequently, the strategy has a 59% weighting to securities with a market-cap below US$10bn. This reflects the high active share ratio of 97% and the strategy's high off-benchmark exposure, which is 77%.
