The European high yield market has grown considerably over the last few years. The interest from investors in further diversifying the composition of their fixed income portfolios, and the potential for returns that high yield vehicles can offer, have resulted in a plethora of asset managers launching funds investing in the asset class.
“High yield is one of the fastest growing asset classes in the world,” says Anthony Robertson, senior portfolio manager at BlueBay Asset Management. “Now [the asset class] is much more diversified and opportunities exist not just from primary issuance but also in the secondary market from the supply of fallen angels,” he explains, adding that this market is also becoming increasingly integrated with the leveraged loan and credit default swaps markets. “With these developments the opportunities for investors are much more abundant in terms of positioning within a capital structure or replicating credit exposure through synthetic exposure,” he comments.
Mr Robertson manages the BlueBay High Yield Bond fund which, according to data from Standard & Poor’s, has been the top performing fund in the European high yield category over one and three years.
The fund, listed in Luxembourg, invests at least two third of its assets in debt obligation of sub-investment grade-rated companies within the European Union. It may also invest up to one third of net assets in similar companies outside the EU and in investment grade securities generally.
Mr Robertson describes the investment strategy of the fund as “very proprietary-driven, based on a strong focus on fundamental research where capital is the cornerstone of the entire process”. Therefore, he says, they are more concentrated in credit risk than the majority of their peers.
“We typically choose to invest with conviction in securities that we have a very strong and positive fundamental view on and we overlay that with a very dynamic relative value focus,” Mr Robertson comments. “This implies that whereas we are very fundamentally-driven, we are nonetheless very pro-active in our style.”
The fund aims to outperform the Merrill Lynch European Currency High Yield Constrained index by 300 basis points. Sector positioning is influenced by the top-down view provided by the fund’s investment committee and the fund manager makes the investment selection based on recommendations coming from the analytical team. For this selection they follow a security screening process that includes quantitative and qualitative risk/return analysis.
The fund can hold up to 25 per cent in cash, up to 15 per cent in credit default swaps and 10 percent in bank loans.
“Under Ucits regulations we have allowances for owning loans and credit default swaps, both long and short positions, but only within the regulatory guidelines,” Mr Robertson says.
The investment strategy of the fund has managed to secure a strong performance compared to the sector’s average. Inflows of new assets have also been positive and according to Standard & Poor’s assets under management represented ?227m at the end of August last year.
|
