AXA IM launches global credit fund, US managers still see value

AXA Investment Managers (AXA IM) has launched the AXA WF Global SmartBeta Credit Bonds (the Fund), the latest addition to AXA IM’s SmartBeta fund range, as a report from S&P Capital IQ’s Fund Research says managers still see value in US corporate bonds.

The AXA IM fund has been designed for institutional investors seeking low-cost global credit exposure, without the drawbacks of passive issuance-based index tracking strategies. It is co-managed by Damien Maisonniac in Paris and Lionel Pernias in London.

Both are members of AXA IM’s Global Credit Investment Team, led by Nicole Montoya and working closely with regional credit teams in Europe, the US and Asia in order to manage global solutions.

The Fund follows a ‘buy and maintain’ strategy, aiming to preserve capital through avoiding defaults and minimising turnover. This involves active, continuous monitoring and is more than simply ‘buy and hold’, the firm said.

Unlike index tracking, SmartBeta takes a pragmatic approach to portfolio construction, resulting in better protection against systemic and event risks. It provides investors with global diversification across three broad sectors, five geographical regions and at least 200 individual issuers, while keeping the volatility, turnover and cost down.

Damien Maisonniac, Global Credit Portfolio Manager, AXA IM said the global scope of the fund truly means it can invest in a credit which delivers best value, regardless of geography.

AXA IM announced its series of SmartBeta credit strategies in May 2012. The firm has over £300 billion in fixed income assets under management (as at September 2012), of which nearly £200 billion is currently managed on a Buy and Maintain basis.

For details of the SmartBeta process, read the white paper “Investing in Credit: Smart Beta or Dumb Beta?” by Tim Gardener, Head of Institutional Client Strategy, AXA IM.
Meanwhile a report from S&P Capital IQ’s Fund Research says US fixed income fund managers continue to see value in the credit markets as a whole, although parts of it are deemed expensive.

“Most of the fund managers we interviewed were overweight spread product relative to their indices, but this is a structural feature of the US fixed income fund sector, particularly for funds managed against aggregate indices,” observed Kate Hollis, S&P Capital IQ fund analyst and sector head of fixed income.

Many managers were overweight financials, which were still yielding more than industrials, and many (such as Pioneer) were aiming to move up in credit quality where this was possible without sacrificing too much yield. Many investment grade funds had bought small amounts of crossover high yield names, to produce extra yield and increase the potential for spread tightening should they be upgraded.

Corporate balance sheets are strong, as are earnings, and default rates are likely to stay low. Technicals are still supportive and BlackRock noted that any sell-off in credit markets would be met with further buying. At the short end from investors looking to switch out of cash, and at the long end from pension funds.

Managers believe spreads are still likely to shrink in 2013 but most of the return will come from income. However, MFS Investment Management pointed out that some industrials are back to the same spreads as in 2006. AllianceBernstein agreed that valuations are tight but that carry and roll-down will continue to add extra return until the long end of the Treasury market begins to back up.

The report found that many groups are overweight agency mortgage-backed securities (MBS) as they believe the US Federal Reserve will keep prices supported to avoid any rise in mortgage rates slowing the housing market again. Although agency pass-throughs are negative convexity instruments, most managers believe any rise in volatility this year will be associated with politics and will be temporary.
S&P Capital IQ’s Fund Research is available at www.marketscope.com.

 

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