- Our Global Investment Grade Credit Opportunities strategy takes
an absolute return approach to the global investment grade credit
market
- The strategy aims to deliver consistent positive returns,
irrespective of market conditions
Developed market interest rates and bond yields are close to
historical lows at a time when the global economy is recovering
well and monetary policy is slowly but steadily changing direction.
Were interest rates or bond yields to normalise, traditional
long-only credit funds could face a material challenge to returns.
Whereas an approach such as our Global Investment Grade Credit
Opportunities strategy, with very low interest rate sensitivity and
benchmarked to a cash index, will be far better placed.
We seem to be approaching the end of what has been a rather long
and very supportive credit cycle. This strategy has the ability to
go short (as well as long) credit market risk and individual issuer
exposure. Consequently, it is able to provide investors with
positive returns irrespective of the direction of credit markets or
bond spreads.
An absolute return type of approach lends itself well to the
investment grade area of the credit market. There are a wide range
of instruments that can be employed to go long and short with a
relatively large overlap of the investment grade universe.
AN ACTIVE GLOBAL APPROACH
Our approach to managing credit strategies is grounded in
intensive fundamental research and has enabled the team to generate
attractive risk-adjusted returns through the cycle. Our global
investment grade research team of 13 is resourced to provide a
balance between detailed due diligence of issuers and clear vision
of market and industry sector trends. With an average of 20 years'
industry experience, these analysts have developed expertise though
a number of economic and credit cycles.
The investment team of analysts and portfolio managers work
together in a collaborative and interactive environment that allows
the best ideas to emerge.
Our approach is validated by a long and successful track record
of producing strong risk-adjusted returns in traditional long-only
and absolute return credit strategies. The investment grade section
of the Threadneedle Credit Opportunities Fund (another absolute
return credit fund managed by our team), has delivered over half of
this fund's performance since its inception more than eight years
ago.
THE INVESTMENT UNIVERSE
The strategy will aim to deliver a return in excess of cash
rates1 of 2.5% per annum over the medium term (gross of
charges and tax) by investing primarily in the global investment
grade market. Individual issuer and security selection is expected
to provide the majority of the strategy's relative returns, and in
managing this strategy we plan to emulate the investment approach
taken in the management of the successful Threadneedle Credit
Opportunities Fund.2
In practice this means the strategy will be constructed with a
long-only portfolio of short maturity investments wedded to a
number of other long and short strategies aiming to provide
additional returns. These include: event strategy, directional
long/short strategy, relative value and basis strategy, along with
capital structure arbitrage.
The management team will allocate active risk to whichever
strategy is expected to provide superior risk-adjusted returns.
Additionally, we will have the flexibility to invest in
developed market asset-backed bonds, Asian corporate bonds and
emerging market corporate bonds. The portfolio management team will
assess the best investment grade-only ideas from these areas on a
bottom-up basis against what is achievable in global developed
market corporates. This approach can improve both portfolio
diversification and risk-adjusted returns. We will also be able to
invest in developed market high yield up to a maximum of 10% of the
strategy. These investments will typically be the subordinated debt
of investment grade issuers (such as corporate hybrids) and will
exclude CCC-rated issues.
PORTFOLIO MANAGEMENT TEAM
The strategy's lead managers are Alasdair Ross and Ryan
Staszewski. Alasdair is the Head of Investment Grade Credit EMEA,
and one of the team of portfolio managers responsible for the
Threadneedle Credit Opportunities Fund. Ryan is a Senior Investment
Grade Portfolio Manager based in London and the lead manager of our
UK and European strategic bond portfolios.
In a world where the era of ultra-loose monetary policy
is reversing and the long credit cycle is nearing its end, returns
from long-only credit investment may be called into question. With
a long-short approach and a global research and management
framework, our global investment grade credit opportunities
strategy is well positioned to navigate this shifting terrain and
provide investors with the potential to generate consistent
risk-adjusted returns, irrespective of market
conditions.
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1 Official reference index is the Citigroup EUR 1
Month Eurodeposit. Strategy aims to deliver 2.5% over the reference
index after the impact from the share class currency hedge.
2 The reference to the Threadneedle Credit
Opportunities Fund is for illustrative purposes only and does not
constitute an offer or solicitation of an order to buy or sell any
securities or other financial instruments, or to provide investment
advice or services.