Newsletter February

New funds added to our selection list: 

Selected by WSP analysts according to the highest due diligence standards, these five funds have been introduced this month to address requests from our clients. More specifically for funds with a medium-term duration and limited credit risk. Hence, we are pleased to suggest two Investment Grade Corporate funds: The CT (Columbia Threadneedle) European Corporate Bond and the BNY Mellon Global Credit funds.

On the other side of the risk spectrum, for client that are looking to lock-in attractive return and are willing to broaden their investment universe to emerging market debt, we have added a core solution in this asset class, the Vanguard Emerging Markets Bond fund. It offers an EM Sovereign allocation in hard currency managed with a strict risk control mindset.

Looking further ahead, we have also added a US small- and mid-cap fund. We believe that the lag accumulated in recent years by small caps relative to large caps should be reduced as soon as it is confirmed that the hard landing scenario is avoided. The fund is the CT American Smaller Companies which has come through this complicated period for the asset class remarkably well.

Finally, with risk-free rates set to become less attractive in the coming months, we are proposing a short-dated high-yield strategy that will enable investors to benefit from attractive yields without increasing their sensitivity to interest rates: BNY Mellon Global Short-Dated High Yield Bond fund.

Equity US Small Cap

CT (Lux) American Smaller Companies Fund

The Fund invests at least two-thirds of its assets in shares of smaller companies in the US or companies that have significant operations there. These companies will have a market value between $500 million and $10 billion at the time of purchase even though most of the portfolio will not exceed $5 billion.

The fund therefore ranks as a small- and mid-cap strategy. The fund is a core holding for an US small- and mid-cap allocation. The strategy is essentially driven by a bottom-up approach, while sector allocation as well as factors such as the style, the yield, the quality, the momentum, and the volatility are deliberately neutral vs. the benchmark (Russell 2500 Index).

While many small cap strategies have a growth bias and relatively loose risk control, this fund represents an opportunity to invest in US small caps with highly controlled risk. Most of the alpha generated will come from their selection and very few from other factors. The results are strong and more importantly very stable over time.

In line with its investment philosophy, the fund has the capability to outperform whatever the market conditions. Over the last 5 years, the fund outperformed its benchmark every single year, even though these years have gone through up- and down-market cycles. This illustrates their ability to generate alpha through selection without depending on macro or market conditions.

Fixed Income – Euro IG Corp Bonds

CT (Lux) European Corporate Bond Fund

The fund is a core holding for a Euro corporate bond allocation. Although active, the fund is restricted by relatively strict guidelines, making its performance particularly predictable.

The typical allocation lies in the range of +/- 0.5 years of duration, +/- 1 year for the spread duration, and a maximum high yield allocation of 10%. The Fund invests at least two-thirds of its assets in investment grade bonds priced in Euros and issued by companies in Europe, including the UK, or companies that have significant operations in those regions.

Bonds are rated as investment grade, as defined by rating agencies. The Fund is actively managed in reference to the iBoxx Euro Corporate Bond Index.

Managed by a large and experienced credit team, we are convinced that the fund’s relatively small size will ensure agility in markets that are likely to be more selective. This could be a significant advantage over competitors that are often managing very sizeable portfolios.

Fixed Income – Global IG Corp Bonds 

BNY Mellon Global Credit Fund

The fund invests mainly in investment grade corporate credit of developed countries. However, the fund’s beta is actively managed. The strategy has therefore the latitude to invest up to 20% in off-benchmark credits (including High Yield (“HY”), EM debt and ABS securities).

Duration and FX are also actively managed, although their contribution to relative performance remain marginal. Typically, the fund aims to outperform the benchmark (Bloomberg Global Aggregate Credit index) by 1.5% pa, gross of fees, over rolling three-year periods.

The strategy is managed by Insight’s (BNY’s affiliate) dedicated Global Credit Team, part of the global credit unit, and wider Fixed Income Group. Over the years, Insight has developed one of Europe’s leading bond expertise. This expertise covers all bond asset classes, from the IG and HY corporates to EM debt and Asset-Backed Securities and currencies.

Although the fund may be considered as a core Global IG Corporate strategy, the PMs have the latitude to operate at the margins in other areas of their expertise. The beta of the fund is however actively managed and off-benchmark investments are not intended solely as performance boosters.

Fixed Income – Global HY short term Bonds

BNY Mellon Global Short-Dated High Yield Bond Fund

Insight’s high yield strategy is an actively managed fixed income portfolio that seeks to provide enhanced cash-plus returns by investing primarily in a portfolio of short-dated high yield (“HY”) bonds. The strategy has flexibility to invest in instruments issued by worldwide issuers which may be denominated in any currency.

The strategy is primarily invested in HY cash bonds. The fund provides access to higher yielding opportunities, while helping to diversify away from duration risk and potentially reinvest at higher rates. Therefore short-dated HY has much less volatility than traditional HY (around 5% vs. 8% on average) and provides an interesting decorrelation from a portfolio construction perspective.

The strategy is managed by Insight’s (BNY’s affiliate) dedicated Global Credit Team. Insight has developed a deep expertise in strategies across the full range of credit asset classes. The comparison with its mains short-dated competitors is particularly favourable. The fund is returning 5.0% yearly over the last 3 years with less than 5% of volatility which offers a compelling risk-adjusted performance.

Fixed Income – EM Soverign Bonds hard currency

Vanguard Emerging Markets Bond Fund

The fund invests in fixed income securities of various maturities, yields and qualities. The fund will invest at least 80% of its assets in fixed income securities of issuers that are tied economically to emerging markets countries. The fund seeks to have most of its assets denominated in or hedged back to the US dollar but can invest in local currency denominated bonds on an unhedged basis (max. 10%).

The main characteristic of the strategy is its investment philosophy. It focuses on risk management, avoiding large idiosyncratic bets. Prior to becoming a portfolio manager, the PM was in Blackrock’s portfolio risk management group. We can attribute his risk awareness, to his background as a risk manager. Therefore, the fund is a core holding for an EM Sovereign allocation in hard currency. The fund’s relative performance won’t be driven by large top-down bets but by several small bottom-up selection.

Since launch, the fund is beating the index every single year and outperforming by more than 350bps yearly for the last 3 years (-0.4% vs. -4.0%) as of 31.1.2024. As expected due to its philosophy, this performance has been done with lower volatility than the benchmark and the mean of its peer group.

To access the report on the above funds, you may contact our team, or you may order a report on our website library.

Alternatively, you can register for free to our OpenList as user member. Some of the selected funds are included in this list, which gives you access to our reports and other information on the funds.