1. Newsroom
  2. Unconstrained active bond managers prove their worth
Menu
UBP in the press 28.05.2018

Unconstrained active bond managers prove their worth

Unconstrained active bond managers prove their worth

Agefi Indices (May 2018) - The upturn in market volatility in early 2018, along with the gradual return to normal in inflation and interest rates, is working in favour of active bond managers.


Although the surge in volatility that shook the equity market in February was more technical than systemic, it revealed the new market environment. Fears about inflation, as perceived by investors, led to a volatility shock similar to that seen in China in the summer of 2015, at a time when the equity markets had become much less liquid and deep over the previous few quarters. This situation prompted traders who were short volatility to cover their positions, with immediate repercussions on asset prices. This type of sequence could recur, definitively ending the period of exceptionally low volatility seen in 2017.

No surge in inflation, but ongoing rate hikes need to be fully priced in

On the macroeconomic front, any fears of a sharp jump in inflation are probably overdone: it is probably more sensible to expect inflation and interest rates to normalise gradually. Economic growth remains robust and positive in all areas of the world – which is fairly rare – and has generally been stronger than expected at this late stage of the growth cycle. Business confidence remains close to its all-time highs, as shown by the Capex Plans index in the US.

Inflation has not yet reached central-bank targets and has a way to go to get there: core inflation in the US and eurozone remains below the official target. Given the current level of potential growth, inflation should have started rising three years ago. The fact that inflation and growth have been out of sync suggests that the link between them, as predicted by the Phillips curve, is fairly weak in the current cycle.

Although an inflation shock is relatively unlikely, the Fed is adopting a pragmatic approach to monetary tightening and is likely to keep raising official interest rates once per quarter this year. However, this tightening is not yet being fully factored in by the bond markets which, in recent years, have been consistently slow to price in rate hikes. This should cause investors to remain cautious regarding the duration of their bond portfolios.

Active management of duration, credit risk and stock selection

These conditions are conducive to active bond management, the aim of which is to achieve absolute returns, i.e. returns that are not constrained by benchmark indexes. The active approach is especially important given that euro aggregate investors still have little scope to deal with future rate hikes.

The first step is to adopt a dynamic approach to duration and credit risk. The aim is to reduce exposure to rising bond yields, and to break down that exposure between markets through global diversification of duration. In terms of credit allocation, the RASD (risk-adjusted spread duration) strategy gives the necessary leeway to adjust a portfolio’s sensitivity as market conditions change.

The ability to identify and exploit relative-value opportunities also allows active managers to optimise the risk/return and liquidity profile of their portfolios. One way of achieving this is by using derivative strategies, which are currently delivering higher carry and roll-down than traditional investment-grade bonds in both euros and US dollars.

Finally, the strength of a bond portfolio inevitably depends on careful selection of individual bonds and segments. From this point of view, investing in high-yield paper, globally and via CDSs, is a source of value. CDSs are cheaper than traditional bonds, as well as having lower duration and higher liquidity. Similarly, subordinated bank debt is an asset class that stands out because of its excellent fundamentals. The capital ratios of US and European banks are still solid, close to 12%, while the sector is becoming more profitable now that banks have settled most of their legal costs and are making more profit from client lending.

UBP Global and Absolute return fixed income

RENDU DE LINT Christel.jpg

Christel Rendu de Lint
Head of Global & Absolute Return Fixed Income

Newsletter

Sign up to receive UBP’s latest news & investment insights directly in your inbox

Click and enter your email address to subscribe

Investimenti responsabili

Creare valore con investimenti responsabili

Maggiori informazioni sugli investimenti responsabili

Guardate il video

Le news più lette

Comunicati stampa 05.06.2018

Nuova strategia sulla piattaforma UBP di UCITS alternativi

UBP annuncia il lancio di una nuova strategia di arbitraggio sulla sua piattaforma di UCITS alternativi in collaborazione con Cheyne Capital Management (UK) LLP («Cheyne Capital»), società di gestione con sede a Londra specializzata negli investimenti alternativi. Si aggiunge così un quarto fondo alla piattaforma UBP di UCITS alternativi che ora gestisce capitali per quasi 700 milioni di CHF.

Comunicati stampa 31.05.2018

UBP acquisirà Banque Carnegie Luxembourg

Union Bancaire Privée, UBP SA (UBP) e Carnegie Investment Bank AB (publ) hanno annunciato in data odierna di aver stipulato un accordo in virtù del quale Union Bancaire Privée (Europe) S.A. acquisirà Banque Carnegie Luxembourg S.A. (BCL). L’operazione è soggetta all’approvazione delle competenti autorità regolatorie e si prevede che sarà perfezionata nel quarto trimestre 2018.

Comunicati stampa 28.02.2018

UBP potenzia la sua offerta di investimenti sostenibili e responsabili

UBP ha annunciato l’ulteriore ampliamento della sua gamma di prodotti nell’ambito dei mercati emergenti con il lancio di un nuovo fondo: EM Sustainable High Grade Corporate Bond. La Banca conferma così la sua volontà di potenziare l’approccio verso gli investimenti responsabili e di sviluppare un’offerta che risponda ai criteri ambientali, sociali e di governance (ESG).

Altro da leggere

Comunicati stampa 05.06.2018

Nuova strategia sulla piattaforma UBP di UCITS alternativi

UBP annuncia il lancio di una nuova strategia di arbitraggio sulla sua piattaforma di UCITS alternativi in collaborazione con Cheyne Capital Management (UK) LLP («Cheyne Capital»), società di gestione con sede a Londra specializzata negli investimenti alternativi. Si aggiunge così un quarto fondo alla piattaforma UBP di UCITS alternativi che ora gestisce capitali per quasi 700 milioni di CHF.

Comunicati stampa 31.05.2018

UBP acquisirà Banque Carnegie Luxembourg

Union Bancaire Privée, UBP SA (UBP) e Carnegie Investment Bank AB (publ) hanno annunciato in data odierna di aver stipulato un accordo in virtù del quale Union Bancaire Privée (Europe) S.A. acquisirà Banque Carnegie Luxembourg S.A. (BCL). L’operazione è soggetta all’approvazione delle competenti autorità regolatorie e si prevede che sarà perfezionata nel quarto trimestre 2018.

Comunicati stampa 28.02.2018

UBP potenzia la sua offerta di investimenti sostenibili e responsabili

UBP ha annunciato l’ulteriore ampliamento della sua gamma di prodotti nell’ambito dei mercati emergenti con il lancio di un nuovo fondo: EM Sustainable High Grade Corporate Bond. La Banca conferma così la sua volontà di potenziare l’approccio verso gli investimenti responsabili e di sviluppare un’offerta che risponda ai criteri ambientali, sociali e di governance (ESG).