Positioning Multi Asset Credit portfolios for turbulent times
CAMRADATA whitepaper offers insight into the opportunities and risks
CAMRADATA, , a leading provider of data and analysis for institutional investors, has published a new white paper, Multi Asset Credit (MAC), ‘Making smarter fixed income allocations work harder,’ following a roundtable discussion with key investors and asset managers, hosted by the firm in London in July.
At a time when the world is in the late stages of a credit cycle like no other, and the free spending sprees of Central Banks have coalesced with the longest bond bull run in history, CAMRADATA’s roundtable on MAC strategies discussed if investors can still achieve good yields.
Sean Thompson, Managing Director, CAMRADATA, advised that multi asset credit has been getting a lot of publicity recently with new funds being launched, however, investors have concerns.
The potential loss of capital (drawdown risk), see-sawing returns (volatility) and the ability to quickly redeem funds when needed (liquidity risk) are worries shared by many of our panel at the roundtable. Therefore, finding attractive sources of income remains a challenge, exacerbated by the many investment opportunities now available and the complexities involved in asset allocation, market timing and risk management in fixed income.
When considering the future for MAC and the opportunities and risks for this asset class, the big question is, are we witnessing a credit bubble that will pop or a credit balloon that will gently deflate?
The MAC Investors at the roundtable claimed they have shortened duration and exited certain sectors in expectation of rate rises and greater defaults. While returns might be cyclically lower in the years ahead, MACS are confident they can diversify enough to avoid serious losses.
Key highlights included:
Are we in a credit bubble? None of the investors gave an outright ‘yes’ but several said they saw signs of stress, volatility and most of all, overpaying.
“Look across credit and ask: ‘what has changed?’” said Robert Neilson, head of product strategy & solutions, fixed income at Invesco. “There has been an asset price balloon created by central banks. In the last year Quantitative Tightening has begun; we have rising rates in the US. The conditions we have become used to are being withdrawn.”
Azhar Hussain, head of global high yield at Royal London Asset Management stated that higher quality investment grade companies are weakening their debt metrics to finance acquisitions or pay dividends to shareholders. The latter manifest themselves in the BBB category, which Hussain notes is now bigger than the Leveraged Loans and High Yield sectors combined.
Jeff Boswell, strategy leader at Investec Asset Management highlighted that, “the great thing about MACS is that you are not bound by any rating or geographic boundaries. You have the flexibility to play across traditional investor segmentations, with the identification of credits that migrant between sub-investment grade and investment grade a good example of this.”
The discussion also focused on investment tourism, with Jeff Boswell warning against the kind of multi-credit fund which used its liberty to roam simply to pursue the hottest markets. The final talking point was the use of derivatives, especially for protection purposes.
Sean Thompson, Managing Director, CAMRADATA said, “This free white paper is essential reading for MAC investors as it offers valuable insight from leading investors into which MAC strategies may work best as we move towards the late stages of a credit cycle.
“As well as our regular white papers, we offer investment research and quarterly investment reports, plus we have a free service for institutional investors to allow them to do assisted searches with specific manager search requirements,” concludes Mr Thompson.
Click here to read the white paper.