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 actively managed fund invests globally in High Yield bonds. The investment process combines active high yield portfolio management with Sustainability/ESG integration and we only invest in companies that have gone through our rigorous in-house ESG rating process.
Our research and experience shows that focusing the investable universe on companies with strong ESG profiles and integrating sustainability into investment decisions is a highly effective tool that not only helps in mitigating risks typically not captured by traditional financial analysis, but also helps identify attractive opportunities.
The fund generates performance mainly by bottom-up driven credit selection but also takes active positions on sectors, regions and overall credit beta. The fund targets better returns than its benchmark, the ICE BofA Global High Yield Index (USD hedged). Since inception the fund has outperformed the benchmark and - importantly - has achieved this with a significantly lower volatility.
The strategy is managed by Gerhard von Stockum and Jayadev Mishra, who have a combined HY experience of 30 years. Both have a strong background in bottom-up credit analysis. They are joined on the fund by Kevin Baker and Benoît Robaux, who both have extensive backgrounds in high yield and credit, and further supported by a strong team of Fixed Income/Credit portfolio managers and analysts as well as a leading ESG Research team.
How are you positioning your portfolio for 2023?
We think that 2023 will be a good year for active credit selection. Dispersion across HY markets is high and there are significant differences across industries and business models in their resilience to the economic headwinds and changes in the inflation and interest rate environment. As there is still a considerable amount of uncertainty and a genuinely broad range of plausible outcomes from hard to soft to no landing, we also think it is an environment that favours carry.
We like Financials, as e.g. banks and life insurers benefit from the higher rates, while still trading at a discount. In spite of consumer spending still holding up well, we would caution against extrapolating this through the whole of 2023 as excess savings accumulated during the COVID period will likely be run down over the next several months, an effect that can already be seen in spending patterns of lower income households. While balance sheets are overall healthy, we would require very significant risk premia to invest in issuers with thin liquidity buffers. We position accordingly.
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.
At a company level we would highlight our position in Casino Guichard Perrachon. While there are still a number of open questions about the longer term deleveraging prospects, we think maturities through 24 are already well covered. With the 4.498% 2024s still offering yields north of 23%, we see them as attractive value in the context of our portfolio.
On an industry level, we particularly like debt collectors, a niche in the Financials sector. They benefit from strong balance sheets and good liquidity. The market here seems to price only the potentially lower collections due to economic headwinds, but seems to ignore the fact that especially in difficult times these companies can replenish their pipeline at attractive prices. We like especially the larger players with good capital market access, such as Intrum, PRA Group or Encore.
In terms of regional preferences, we still think that EM offers a lot of dislocations and alpha opportunities, while we continue to like Europe over US - here the valuation argument has recently become weaker as Europe outperformed, but it still holds. Moreover, Europe will benefit more directly from China's reopening and the warmer winter means, we will probably not see a recession in Europe anytime soon.
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