The return of market volatility and the end of loose monetary policy in parts of the world has led several market specialists to suggest that absolute return strategies could become more interesting. They are outcome based, and not built using some arbitrary market or region based benchmark. Absolute return strategies aim to deliver positive returns in any market conditions, but returns are not guaranteed. [showhide more_text= “Read more…” less_text=”Hide” hidden=”yes”] These strategies suggest positive returns through the cycle of markets, with many offering a combination of both long (bullish) and short (bearish) exposure. In a narrow sense, absolute return strategies act as an alternative to cash as a Libor plus percentage points is targeted, with controlled volatility and low correlation to traditional asset classes.[/showhide]
Our Investment Process consists of both a Strategic and a Tactical approach.
- The Strategic part includes a Quantitative analysis approach, followed by a Risk Premia Analysis and a Spread forecast view.
- The Tactical part includes a Qualitative judgement approach. The strategy monitors potential tail risks from political developments in Europe and around the world, monetary policy, technicals, sentiment and positioning and produces a diversified exposure in the fixed income space.
As active managers, we aim to generate returns from a top-down asset allocation approach and from a bottom-up Security selection process. Four basic criteria are being used for the selection of Fixed Income securities.
1. Issuer Creditworthiness.[showhide type=”1″ more_text=”Read more…” less_text=”Hide” hidden=”yes”] This criterion is being used relative to the issuer Credit Spread. A quantitative model is being used where each security’s spread is blended to the equity price, where applicable, and a default probability is calculated.[/showhide]
2. Tenor.[showhide type=”2″ more_text=”Read more…” less_text=”Hide” hidden-“yes”] For Sovereign and Corporate issuers, we select tenors according to our duration target. A relative value approach defines the attractiveness of a particular issuer in the proper segment of the yield curve. Quantitative analysis of the cheapness/richness of the issuer through internal and external models.[/showhide]
3. Currency.[showhide type=”3″ more_text=”Read more…” less_text=”Hide” hidden=”yes”] If an issuer offers multiple currency bonds, we can choose to grasp a security in a currency that offers a higher spread and hedge the FX exposure.[/showhide]
4. Liquidity.[showhide type=”4″ more_text=”Read more…” less_text=”Hide” hidden=”yes”] Liquidity of an issue/issuer is being taken into consideration before investing.[/showhide]