InvestmentEurope's recent Lausanne Summit saw ten management groups outline their unique investment ideas, including Ignis Asset Management.
InvestmentEurope’s recent Lausanne Summit saw ten management groups outline their unique investment ideas, including Ignis Asset Management.
Chris Bowie, head of credit portfolio management at Ignis Asset Management, spoke bluntly in describing fixed income as “a challenging place to be” at present. “I am quite bearish on fixed income, specifically government bonds, and corporate bonds have significant headwinds facing them, too,” he said.
Given the potential downside for the once ‘safe’ asset class of fixed income, Ignis is highlighting the benefits of its Absolute Return Credit Fund, launched in August and part of its €70bn fixed income complex.
The ‘absolute return’ approach is useful, as the asset has become as much about price as yield. A 5% move in nominal debt yields inflicts a 31.5% capital loss on investors, or a 21.5% capital loss for credit investors.
Ignis’s absolute return fund is market neutral. “There is zero beta in it because ‘beta’ is a very dangerous and expensive place to be for the next three to five years,” said Bowie.
The fund conducts pairs trades – on average 10 at any one time – drawing on suggestions for both sides of the pair from Ignis’s nine credit analysts. The analysts must also propose a price target and expected time horizon per trade, catalysts, suitable hedging instrument to cut market risk, expected pay-off and what type of trade it is, such as M&A.
The positions are sized by calculating a hedge ratio using CDS spreads for each pair, including the cost of the hedge itself. The historic volatility of the pair is calculated based on that ratio, and the maximum position sized to one month’s standard deviation of the historic volatility of the pair. This is continually reassessed.
Each position taken is reviewed if it loses 25bps, and cut automatically on a fall of 50bps. Leverage is capped at three times assets, but is currently less than half that. Volatility is capped at 6%, and Bowie and his team target returns of cash plus 5%.
Ignis earns performance fees only from its Luxembourg-based fund – subject to high water mark – after they make more than Eonia for investors.
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