Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
We believe an unconstrained, opportunistic approach with no underlying cognitive bias and the discipline to wait for the right entry point is vital to delivering the diversification credit portfolios have historically provided. Our approach combines a value-driven stance, contrarian mindset and dose of common sense, to provide investors a bond allocation that aims to; diversify and give a very low correlation to risk assets, reduce capital losses in times of stress and provide some income where it makes sense to do so. Pictet Strategic Credit is a long-biased credit strategy and our repeatable investment process is rooted in identifying value. Our conviction is that having the discipline to wait for the right entry point is the correct way to navigate the cycle. The lack of benchmark constraints on the strategy gives us the freedom to employ active interest rate management and to allocate across liquid fixed income, to find pockets of value or take advantage of mispriced situations. The investment team is headed by Jon Mawby, and comprises Mathieu Magnin, Charles-Antoine Bory and Andrew Wilmont. They bring over 70 years of experience managing credit across the ratings spectrum. The core team sits within Pictet Asset Management’s almost $8bn developed credit team, headed by Frederic Salmon, which has the support of 9 dedicated credit analysts and also benefits from the resources and infrastructure of Pictet’s overall $60bn+ fixed income platform.
How are you positioning your portfolio to prepare for the global recovery from the Covid-19 pandemic?
In our experience, we are squarely in the part of the volatility cycle where remaining patient takes on more importance than ever. On the one hand, recent market euphoria and the ongoing reach for yield has continued to drive valuations and positioning to extremes, evidenced by parts of the credit market close to or at record tight spreads. Meanwhile, realised volatility has compressed back to pre-Covid levels. Against this however we note many underlying credit market fragilities such as questionable fundamentals, elevated corporate leverage and the overall deterioration of credit quality, particularly in terms of IG indices. Remaining disciplined is therefore key in this environment. In line with our value driven and contrarian philosophy we have recently been reducing risk and keeping to a defensive stance. Our aim is to ensure the portfolio is well positioned to take advantage of volatility when it comes. We are low duration but have scope to add to this should we see a further selloff in yields. The importance of a nimble, flexible mindset remains at the forefront of our thinking. This should enable us to continue to generate uncorrelated returns, particularly given the evolving global risks in increasingly stretched credit markets.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We remain of the view that BB rated ‘rising star’ names provide us with a higher margin of error than over leveraged, tight BBB rated names in several instances. Some of these names are deleveraging prospects and potentially well positioned with flexible business models and balance sheets. We feel there is good potential for a ratings upgrade from high yield to investment grade in the medium term. Correctly identifying these candidates is a good way of embedding natural capital protection into the portfolio.
Slightly further up the ratings spectrum we recently initiated a trade seeking to benefit from the attractive USD rates curve and roll-down on offer in the 4-6 year tenor specifically. It is populated with high quality BBB credits which we view as trading at attractive levels, we retain room to add further names or increase the size as the backdrop evolves.