Pioneer Investments has launched a global subordinated bond strategy to make up for the credit yields low levels.
The strategy will retain a a minimum 25% allocation to both corporate hybrids and financial hybrids, the company said.
It also seeks to optimise risk-adjusted returns by employing a “quality bias” and focusing on both the quality of the issuer and the strength of the deal structure
Pioneer will take an active risk management approach focusing on liquidity and drawdown management rather than only income/carry.
The strategy will be managed out of Pioneer Investments’ Dublin Investment Centre by Tanguy Le Saout, head of European Fixed Income, and Vianney Hocquet, portfolio manager.
Supported by a 25-person strong independent Global Credit Research team, Le Saout and Hocquet decide allocation to different asset classes, geographies and ratings, driven by risk/reward analysis. There is a strong quality bias in the strategy with a focus on subordinated bonds issued by solid companies following a 2-step approach, emphasising both issuer and structure.
The asset class is evolving significantly, with corporate hybrids recording strong issuance since 2012, surging in 2013, with €31bn of supply, up from €5bn in 2012. The strong supply continued through to this year and the investable universe now stands over €100bn with issuance coming from a range of sectors, according to Pioneer.
“With yields becoming increasingly difficult to find, investors can opt to turn to bonds with longer maturities or issued by companies with higher credit spreads but the level of potential yield may not compensate for the underlying risks associated with this allocation, namely rising rates and increased default risk’’, said Tanguy Le Saout, head of European Fixed Income.
“Subordinated Debt tends to have two times to four times the spreads of Senior Securities, and in turn may offer at least two times to three times the yield of senior bonds issued by similarly rated companies.’’
“We believe our approach of having a flexible allocation to both Corporate Hybrid bonds and Financial Subordinated bonds, should enable this portfolio to target opportunities across the entire global subordinated debt market, giving investors access to some of the best ideas across multiple sectors and geographies while at the same time helping to manage the liquidity of the overall portfolio’’, said Vianney Hocquet.