Stratton Street Capital and Universal-Investment have launched two unique global credit sub-funds: the Stratton Street Ucits – NFA Global Bond Fund UI and the Stratton Street Ucits – Next Generation Global Bond Fund UI.
The objective of both Ucits sub-funds is to provide investors with both a high income and a superior overall return to both developed and emerging market bond indices over a market cycle. The sub-funds seek to sustain higher income than typical investment grade indices by targeting undervalued investments which amplify capital appreciation while reducing downside risks.
The Stratton Street Ucits – NFA Global Bond Fund UI will invest in hard currency global investment grade credit, whilst the Stratton Street Ucits – Next Generation Global Bond Fund UI will invest a minimum of 80% of the fund volume in hard currency global investment grade credit, but also in some high yield and active currency exposure. For this sub-fund, up to 20% of the fund volume may be in sub-investment grade hard currency credit and the fund can take currency exposure of up to 25%.
Traditionally investors have segmented the world into developed and emerging economies, whereas Stratton Street looks at creditors vs. debtors. “Many so called ‘developed’ countries have amassed substantial debts and are in fact much riskier than is often perceived,” explains Andy Seaman, partner & chief investment officer of Stratton Street Capital. “Conversely, many countries classified as ‘emerging’ have strong fundamentals, low levels of government debt, high credit quality and incomes well above those of many ‘developed’ countries.”
Net Foreign Asset (NFA) analysis is the primary long-term driver of country and currency returns. The analysis that Stratton Street utilises takes the cumulative current account (adjusted for valuation effects) in the entire wealth of a country (across government, corporations and households) and divides that into GDP to generate a ranking.
“Credit Markets are undoubtedly inefficient, which is great for true active managers like Stratton Street,” explains Ben Day, head of Global Sales at Stratton Street Capital.
“By combining our unique NFA analysis, proprietary global macro and relative value models we are able to focus our credit research and construct portfolios of undervalued credits that fit our overall macro view. We do not believe in building portfolios based upon index weights given the inefficient index construction in the fixed income space. Instead we focus on relative value across the entire credit spectrum.”