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?
The Short Duration Credit funds gives investors exposure to a core market, but with much lower interest rate risk - which is particularly attractive when rates are near record lows. We believe that we have a unique approach to managing sterling credit portfolios. This approach has helped us build a successful long-term track record, and has led to long-term client relationships. Sterling credit is a key area for us, and we occupy a significant position in the market. We focus on what we understand well and drive value from it. Managing sterling credit funds is about searching for inefficiencies, mis-valuations and analysing the behaviour of investors. We believe the risk in credit fundamentals is misunderstood - for instance with an over-reliance on benchmarks and credit ratings, as well as undervaluing security - which allows us to uncover opportunities. We believe that inefficiencies such as reliance on benchmarks are global in nature, while others, specifically around security, are particularly apparent in the UK investment grade market. We have a very experienced team of portfolio managers, backed by a specialist credit research team as well as the wider resources of RLAM's award-winning fixed income team.
How are you positioning your portfolio to prepare for the global recovery from the Covid-19 pandemic?
Although the recovery will undoubtedly be good for sectors such as travel or pubs, sterling credit markets will probably not see a huge effect as we have already seen a strong rebound, fuelled by a combination of corporate bond purchases from the Bank of England, government support for the economy (particularly jobs) and expectations of a recovery that crystalised when we got positive news on vaccines. So although we added to some of the more pandemic-affected sectors last year, we see little value in increasing this substantially from here. We had increased our exposure to the financials sectors over 2020 in light of attractive valuations and this paid off later in 2020 and into 2021 as these sectors outperformed, particularly subordinated insurance. We're happy to maintain this as banks have benefitted from the government's support for struggling companies and the reopening of the economy over the next few months will be a further boost.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio?
We see ourselves as long-term lenders of our clients' money, rather than traders of bonds. Our overall positioning doesn't change significantly from one quarter to the next. However, there are interesting investment opportunities, based on the ESG analysis we integrate in our funds. We do not invest our clients' money in tobacco companies, a sector which many investors shun and subsequently is an area of the corporate bond market which has underperformed despite the rally over the last six months. We also think there are interesting opportunities currently for investment in subordinated debt of large global companies and financials. One example is the utility company, EDF where you can achieve a yield of over 3%, but as the bond is callable in 2026, we do not have exposure ourselves to significant interest rate volatility.