Allianz Global Floating Rate Notes Strategy
The strategy objective is to generate attractive returns in a low yield environment whilst aiming to deliver additional income through rising interest rates. The strategy targets Cash + ~ 1.5% p.a. over a cycle. Unlike traditional bonds where the periodic coupons have a fixed nominal amount, FRNs offer protection if interest rates do rise as their coupons will adjust upwards accordingly and their price will remain stable.1
Global Floating Rate Notes - an attractive investment even without a shift in interest rates
Worldwide, bond markets are in various stages of the cycle, and this offers a variety of investment opportunities. Rising interest rates in the US and an end to the European Central Bank’s ultra-accommodative monetary policy have currently created a favourable environment for floating rate notes. Interest rates probably won’t reach high levels for a while yet so investors remain on the hunt for alternative opportunities for returns. Investing in floating rate notes can form part of the solution. When carefully selected and combined, these securities can achieve attractive returns in the current market environment, and, when interest rates do rise, floating rate notes can benefit. The short duration nature of these securities makes global floating rate notes very adaptable and less volatile.
Key features of our strategy
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Risk management: ‘Winning by not losing’
Risk management is key to success in credit investing, given the asymmetric return profile (i.e. if a bond defaults you may lose everything; if a bond pays you back on time, the return is just the coupon income). Avoiding distress in credit investing protects capital over the long-term and therefore our risk management process is designed to avoid the “blow-ups” – what we like to call ‘winning by not losing’.
The team
The Global Fixed Income team has over 30 years of managing global floating rate notes, being one of the pioneers of global fixed income investing back in the 1980s, and started investing in the credit world back in the 1990s when the global credit markets incepted along with the euro in 1999. Being part of this team confers huge benefits for FRN investing, not least within credit assessment, where we can leverage the expertise of more than 700 investment professionals, managing over USD 230 billion of fixed income assets, and USD 631 billion across all assets, globally.
Insights
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Active is: Integrating ESG ESG: an essential risk mitigation tool for fixed income portfolios |
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Floating Rate Notes: the fixed income asset for today’s environment? As fixed income investors around the world adjust to the prospect of normalising monetary policy, we examine the qualities that make floating rate notes an attractive strategy for the new global environment. |
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Global Floating Rate Notes in the sweet spot In this article, we discuss three unique qualities that can give our GFRN investors the best of cash and high yield. |
Data as at 31st March 2018
1. Performance of the strategy is not guaranteed and losses remain possible.
What other strategies are available? |
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.