When investors compare bonds of similar credit quality, they tend to pick the one with the highest yield. However this yield may indicate that the market expects the issuer’s rating to be cut. The selection of bonds which offer the potential for credit rating upgrades, hence with a reduction of risk premiums is a demanding but economically justified task. The reasons for credit quality to improve can be classified in two groups: 1) issuer-specific issues, such as corporate governance reform, sale of non-performing assets, stronger shareholder support, or 2) sector-specific trends, such as recovery from recession. A stake on a company-specific event entails a high level of uncertainty, which needs to be rewarded with a corresponding risk premium.
Our analysts attentively monitor industry sectors in a regional context with global economic trends and market sentiments. By scrutinizing individual companies against a macro backdrop, our analysts can determine fair value estimates more accurately and have a better handle on forecasting bond performance.
The bonds of issuers with fundamentally sound credit metrics and attractive yields form the bulk of our pipeline in terms of potential investment. Our advisors also perform scenario analysis for change in sector and company specific risk premiums.
Risk assessment is the key element in any investment management process, and to do this job well we go beyond the news headlines and the data feeds. Hundreds of lasting trading relationships with the professional market participants around the world let us accomplish what the majority of the portfolio managers are not able to do – we come directly to the region where the trade idea is supposed to work; we speak with the locals and find the information that is relevant to the proposed investment. Getting to know the local sentiment is a great way to fine-tune the investment entry and exit timings, determine the correct allocations. The regional market makers also offer tighter pricing, whichmakes trade executions cheaper.