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 strategy actively manages global corporate bonds. The focus is on global diversification and selection of individual securities to ensure that the credit spread compensates adequately for the risks involved.
Within investment grade, the fund has an emphasis on the mid-yield segment (ratings A+ to BBB-). The focus of the strategy is solely on the corporate bonds asset class and credit selection. Other asset classes, such as government bonds, ABS/MBS, convertible bonds or other funds are not in focus. We use derivatives mainly for hedging risks/exposures. The FX exposures, other than the reference currency, are hedged and the duration deviation from the benchmark is kept low. So it's just about selecting the best bonds in the global universe.
The strategy also encompasses the exploitation of relative-value opportunities in order to maximize the credit spread. We believe that the credit market is slow to react to new trends and, therefore, presents investment opportunities across industries, structures and issuers. A global opportunity set provides us the greatest scope to diversify risks and generate income.
We have a combined PM/Analyst approach in order be nimble and act flexibly. The team applies a research-driven investment process, combining a top-down approach to evaluate geographies and industries with bottom-up analysis to ensure optimal issuer and bond selection. This ensures timely implementation of investment decisions; we are not dependent on external committee decisions. Decisions on portfolio holdings and weights lies ultimately with the Lead Portfolio Manager Christian Hantel.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
Our fund has done very well in 2020. This provided us confirmation that our approach is right and that we should stick to our main principles, namely:
- Pick your bonds from a global opportunity set as it provides the greatest scope to diversify risks and generate income. We were glad to be a global player, as the US primary market never shut down and in spring of 2020, new issue premiums were particularly attractive.
- Be an active investor, adjusting to changing conditions quickly. The temporarily implemented hedges such as the CDS iTraxx XOVER position, as well as the increase in duration during the peak of the crisis helped safeguard the portfolio. We lifted hedges fast enough to make room for the portfolio to recover quickly.
- Be confident and selective in what you pick. At the height of the crisis, we sold as little as possible. We carefully analysed all our positions and understood that most of them would weather the crisis well. This decision paid out handsomely.
- Keep your approach structured in order to focus on the most relevant topics and do not get distracted. Our fund follows a disciplined approach that leads to repeatable success.
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.
We believe in the ongoing market recovery. An uneven recovery across sectors, but also within sectors, opens up opportunities for active managers, such as ourselves. Below are our five main performance drivers:
- Cyclical sectors: Currently, fundamentals reflect an improvement of the macro & microeconomic situation, so we tend to favour cyclical sectors. These offer an attractive spread pick-up for a fundamental risk that is generally improving.
- Relative value: We continue exploiting cross-currency relative-value opportunities, as these are an all-weather source of optimizing investments without increasing portfolio risk.
- Segments with lower rate-sensitivity, such as AT1s and corporate hybrids with shorter call dates, offer a partial hedge to rates moves. We carefully analyse issuers' fundamentals and when convinced about their financial strength, we are comfortable to go down the capital structure and pick bonds with a higher spread.
- BB-rated bonds offer a much more attractive yield for a limited extra risk. In addition, we seek to capture "rising stars". Since the credit cycle turned favourable for bond investors, we expect these to outnumber "fallen angels".
- Telecom/Media: We keep our overweight in these more defensive sectors, as we like their stable cash flow generation. This adds stability to the overall strategy.
For further information or questions please contact our Head of UK/ Ireland Sheridan Bowers on 020 7255 8321 or email her at [email protected]