Pictet’s Raymond Sagayam avoids pitfalls of global fixed income
Pictet’s Raymond Sagayam says there are three biases common in his sector, and that following following them can reveal risks.
Raymond Sagayam (pictured), manager of the Swiss group’s Pictet Total Return-Kosmos fund, adds that it is important global fixed income strategies are truly global, not European or US, with a nod to other markets. The fund turned one year old on 23 June.
“You need the ability to derive alpha in all markets,” Sagayam says. “We are positioned between pure macro and relative value, and long and short. We change our profit centres and attributions very carefully.
Sagayam says being truly global helped him and co-manager Kazik Swiderski lower their fund’s volatility. This was important, because their return target of 6% to 8% is accompanied by a volatility aim of 5% to 8%.
He adds that it is vital not to be lumbered with traditional biases found in some fixed income strategies, such as necessarily buying lower rated securities to boost returns; or having a disproportionate exposure to financials; or a reliance on positive income or ‘carry’. “This can lead to hidden risks over time,” he says.
While avoiding slavish adherence to biases, Sagayam and his team have protected the portfolio from volatile markets and tail risks. Despite launching the Ucits fund in June 2011 into some of the most turbulent market conditions in Europe for years, the fund has made 4.4% net since, on volatility of just 1%. In addition, its largest peak-to-trough drawdown is just 0.55%.
Sagayam says funds that are mandated to focus just on developed markets may struggle to deliver useful returns on acceptable levels of volatility. His team has been able to buy downside protection selectively, using gains harvested from investments as far afield as Qatar and Saudi Arabia, for example.
“For quasi-sovereign credits there, AA- or A-rated, you’re getting paid between 200 and 250bps Libor spread, and that by itself can fund most shorts you have in European investment grade.”
The team faces a challenge, along with its peers, of finding affordable shorts in Europe, while not diminishing the fund’s overall returns by having to spend too much on protection in case the worst happens.