Allianz Global Multi Asset Credit Strategy
The present environment of low yields and very mixed performance across countries and sectors means that investors in search of yield need to broaden their investment universe by adopting a global approach and diversifying into new segments and markets. Our Global Multi Asset Credit strategy makes it possible to take advantage of the opportunities available in the global credit market while targeting positive returns over the market cycle. The strategy is unconstrained; it aims to achieve returns through controlled risk management however without the restrictions of a benchmark.
Over the last few years there has been a significant shift in investors’ approach to credit. Multi asset credit ‘MAC’ strategies have proliferated as the traditional partitions between investment grade, high yield and securitised debt have broken down. In many cases, these types of funds have replaced allocations to investment grade credit.
We believe that a MAC strategy offers not just an interesting alternative to traditional investment grade credit, but could even act as a lower volatility substitute for equities over the long term.
Philosophy
“Good things happen to good companies”
The aim of our strategy is to generate positive returns throughout the interest rate and economic cycles, firstly by allocating to different credit asset classes, and secondly through bottom-up individual security selection. We invest in healthy and improving issuers which we believe will provide superior long-term total returns. Our average annual return target is Libor +3% with < 6% volatility over a cycle while maintaining an average investment grade rating.The strategy is based on asset allocation between four asset classes: investment grade industrials and financials, high yield industrials, emerging market credit and securitised credit. Other strategies may include convertibles, preference shares, bank loans or distressed debt to try and be more of a substitute for high yield debt, but without the duration. We have concerns that higher return expectations are hard to meet in the current environment and can lead to excessive risk taking. We want our investors to eat well and sleep well.
Process
Our approach begins with our philosophy of investing in healthy and improving issuers which we believe will provide superior long-term total returns. In particular, companies with relatively low debt and sound balance sheets and entities that are turning around after a period of deteriorating fundamentals, should outperform companies encumbered by poor debt dynamics.
The investment process follows four clear steps:
- Relative value analysis: Proprietary research on global growth and credit conditions lead us to define a total risk budget and asset allocation.
- Portfolio structure: The investment team creates a portfolio structure reflecting asset allocation views to arrive at high level portfolio targets in terms of geography, rating, etc.
- Security selection: Diligent micro-level analysis is conducted on each issuer with in-depth fundamental research as well as proprietary quantitative models. With no constraints from a benchmark, the team is free to focus on high conviction ideas.
- Implementation: Positions are sized according to perceived risk and return and passed to a dedicated trade execution desk for implementation. We continually review the performance of each security and our strong sell discipline leads us to reallocate risk if we meet our profit targets or believe better opportunities are available elsewhere.
Risk Management
We view risk management as the responsibility of every member of the investment team, with a focus on diversification and downside protection. Our chief metric for risk management is Weighted Duration Times Spread (WDTS). This measures the sensitivity of the portfolio both to underlying government interest rates and credit spreads. The advantages of this are that it allows for consistent and transparent analysis across investment grade and high yield allocations, while also adapting to daily moves in both risk factors.
In addition, we have a suite of proprietary downside protection tools to control for risk. For investment grade credit, we have a proprietary Credit Watch Model and for sub-investment grade issuers, the High Yield Credit Filter. These tools have proved invaluable in helping to avoid distress and defaults throughout our history of investing in these areas.
Global Multi Asset Credit team
The Global Multi Asset Credit team is a talented, experienced and well-resourced team lead by David Newman, Head of Global High Yield and Multi Asset Credit Strategies.
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12/06/2024
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Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested.
Investing in fixed income instruments may expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including short positions with respect to fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values of these instruments are generally expected to rise. Liquidity risk may possibly delay or prevent account withdrawals or redemptions.
Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail.
This is a marketing communication issued by Allianz Global Investors UK Limited, 199 Bishopsgate, London, EC2M 3TY, www.allianzglobalinvestors.co.uk. Allianz Global Investors UK Limited, company number 11516839, is authorised and regulated by the Financial Conduct Authority. Details about the extent of our regulation are available from us on request and on the Financial Conduct Authority's website (www.fca.org.uk). The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors UK Limited.