Fixing income in Brussels
Benoit Ruelle (pictured), senior fund manager-analyst at Degroof Petercam Asset Management, has discussed the Belgian company’s fixed income fund selection with InvestmentEurope.
Brussels-headquartered Degroof Petercam, born from the merger between Bank Degroof and Petercam in October 2015, shelters a fund selection unit of five fund managers-analysts led by fund selection chief Jean-Marc Turin.
The team selects long-only and alternative strategies, which are mainly onshore. Within the unit, Benoit Ruelle focuses on the broad fixed income spectrum – credit, high yield, aggregate, convertibles – also in his capacity as portfolio manager of the DPAM FoF B Bonds fund. In addition, he covers equity long/short strategies and European equities.
While the second half of 2017 began with a series of market expectations and tensions around central bank announcements, Ruelle says the unit remains cautious in an environment where the US Federal Reserve is gradually moving rates higher.
A crucial part of Degroof Petercam’s fixed income fund selection remains duration, Ruelle points out, adding that the overall portfolio duration has been trimmed considerably.
“For instance, we have closed a position in the Morgan Stanley Euro Corporate Bond fund to reinvest in the zero-duration share class of the same fund. We also exchanged share classes in another fund to invest in its short duration version.
“We do hold positions in government inflation linked short duration bond strategies from AXA and Deutsche Asset Management to reduce the overall duration of the portfolio. At the end of May 2017, over 13% of the net assets of the DPAM FoF Bonds fund were allocated to this type of fund,” Ruelle explains.
The largest bucket in the DPAM FoF B Bonds fund has been allocated to European corporate bonds – 34.5% as of end May 2017 – for a portfolio that has returned 2.72% annually between inception in August 2002 to the end of April 2017.
Overall, Ruelle says that investment grade is favoured at the expense of high yield at the moment.
“The action of the ECB has pushed investors to desert investment grade bonds and to explore other segments of the fixed income market, especially the high yield segment that is quite liquid. We have seen sustained activity on the primary market. We are currently almost out of the asset class as the main issue with the high yield market is that the spreads there do not justify the level of risk we take to invest.”
As for European govies, they are played in the fund through the selection of strategies from Natixis Asset Management and Schroders, and represented some 14.9% of the fund allocation as of end May 2017.
Another sub-segment of the fixed income universe that is suitable for the fund’s investment focus is convertible bonds, an asset class that has no secret for Ruelle, who ran convertible strategies in previous roles prior to joining Degroof Petercam. However, the team currently has shied away from the segment.
“We must seize opportunities and be pragmatic. Given the pricing and the implicit volatility of convertibles, we feel that the asset class does not trade at an appealing entry point,” Ruelle argues.
CAUTIOUS ON PASSIVE
Another area not on the radar of the Belgian manager’s fund selection unit is the ETF pool.
Ruelle believes active management is far from dead, but stresses that most of the company’s clients have heard of fees being cut in the ETF segment.
“Some of them even come to us with a list of ETFs,” he says.
“We remain cautious about the use of ETF’s, especially on certain asset classes. We still remain convinced it is possible to deliver positive alpha with active investment with deep analysis and sufficient resources.”
Neither does he see BlackRock’s recent partial shift from human portfolio management to machine-driven quant as a future burden on active managers.
“BlackRock’s move has occurred on funds that were focusing on very efficient markets, such as the US large caps where it remains extremely hard to deliver alpha and where splitting assets between passive and active makes sense. This move is in line with a long-dated trend of the financial industry: robotisation.”
This feature was first published in the July/August 2017 issue of InvestmentEurope.