AXA IM has announced the launch of a fund, AXA WF Euro SmartBeta Credit Bonds, in response to client demand for a euro denominated smart beta strategy.
The fund is targeting institutional investors seeking low-cost, fundamentally driven exposure to European credit markets without the drawbacks of index tracking strategies.
The approach, which is a ‘buy and maintain’ one with low turnover, takes into account the current low yield and liquidity in credit markets.
The fund is managed by Damien Maisonniac, CFA, who has been co-manager of AXA WF Global SmartBeta Credit Bonds fund since its inception in January 2013.
It is mainly invested in euro denominated investment grade corporate bonds with high levels of issuer, sector and geographic diversification.
A limited amount in non-euro credit can be invested by the manager to improve diversification and capture cross currency relative value, but non-euro currency and duration risk is hedged.
AXA IM said the fund aims to outperform the standard euro credit universe over a credit cycle by limiting the downside risk while capturing the whole credit market spread.
William Healey, global head of SmartBeta Credit at AXA IM, commented: “With European government bond yields low, peripheral spreads compressing and uncertainty around the ECB’s QE programme, institutions, globally, are seeking higher yields.
“We have seen particular interest from Dutch, German and Japanese investors. For example in Japan investors are taking a serious look at the European corporate credit market; these investors like our process where we are consciously making smart allocation decisions and consciously diversifying risk.”
Damien Maisonniac, portfolio manager of the AXA WF Euro SmartBeta Credit Bonds, added: “Unlike index tracking, SmartBeta takes a pragmatic, conservative approach to portfolio construction, resulting in a fund which we believe is better protected against systemic and issuer-specific risks.
“We do not allocate to the most debt-burdened entities nor automatically sell when a bond is downgraded to sub investment grade. Instead we seek to minimise over-concentration in issuers or sectors in a pragmatic or ‘smart’ way.
“With our focus on minimising turnover and, where possible, utilising low-cost entries to the market, we believe it is a smarter approach to coping with structural illiquidity in the markets and minimising the corrosive effects that transaction costs will have on the fund’s performance.”
AXA IM has over £1.7bn (€2.4bn) in assets under management in SmartBeta credit as at 31 March 2015, of which £950m (€1.3bn) is in sterling credit portfolios, £755m (€1bn) in global credit portfolios and £20m (€28m) in euro credit portfolios.