Fitch Affirms 4 BlueBay IG Funds' Quality Ratings
The funds are all managed by BlueBay Asset Management LLP.
The ratings reflect the funds' research-driven investment approach, allowing an effective exploitation of diversified sources of fixed income returns within a well-defined risk-control framework. The ratings are also supported by the depth of BlueBay's dedicated fixed income resources. The "Excellent" rating of IGBF is further supported by the strong track record of the fund of over 12 years.
KEY RATING DRIVERS
Investment Process
The funds implement a well-balanced, research-driven investment process combining macro, fundamental, technical and relative valuation inputs in a formalised, disciplined but also flexible and reactive manner. The PMs use their judgement on where the best relative value opportunities lie when allocating between corporate and sovereign investments and between regions, where applicable.
The funds execute high-conviction, mainly relative value trades within well-defined risk guidelines, across sovereign and corporate investments to derive fixed income alpha sources. Macro exposures and overall portfolio positioning are adjusted dynamically using a derivatives-based overlay strategy. The combination of credit selection alpha and beta management has been the largest contributor to performance since the funds' inception.
Resources
The co-portfolio managers (PM) of the respective funds have a wealth of credit investment experience in the industry (in excess of 16 years for all). The funds benefit from the depth of BlueBay's IG fixed income resources (24 PMs and analysts, each with an average of 13 years of experience). BlueBay differentiates itself with effective integration of credit research and PMs.
The IT platform is built around third-party systems feeding a central database. The front office tools enable PMs to monitor the portfolio in terms of risk exposures and performance attribution, among others.
Fund Manager
Founded in 2001 and now owned by the Royal Bank of Canada (AA/Stable/F1+), BlueBay Asset Management is a specialist credit asset manager with assets under management (AUM) of USD59.1bn at end-March 2015 (USD28.3bn in IG credit).
Track Record
Overall, the funds have exceeded their objectives since launch and delivered a first quintile performance since their launch relative to their categories. Performance has historically been driven by security selection and spread duration, rather than by interest rate duration and yield curve positioning.
The "Excellent" rating of IGBF recognises the strong long-term risk adjusted track record of the fund (first performance quintile since launch and second quintile over five years in its Lipper category, at end-July 2015). The fund, however, has seen its performance deteriorate over the past 12 months (fifth quintile), mainly due to incorrect calls on duration and credit positioning. In Fitch's view managing a barbell strategy, capacity and liquidity are critical to the fund consistently outperforming in the long term and in adverse market conditions.
RATING SENSITIVITIES
The rating may be sensitive to material changes in the investment or operational processes or resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating driver could result in a downgrade. For example, this may be manifested in significant structural deterioration in the fund's performance or excessive risk-taking relative to the fund's investment guidelines. Fitch sees limited key person dependency given the depth of the IG team.
The performance deterioration of IGBF has put pressure on the positive performance adjustment that has been applied to achieve the "Excellent" rating. Should the deteriorating trend continue in 2H15, Fitch will consider placing the fund "Under Review" or downgrading the fund.
Conversely, an upgrade of the funds rated "Strong" could result from a demonstrated outperformance relative to peers and the benchmark in a sustained period of unfavourable market conditions, such as that characterised by a bond sell-off exacerbated by poor liquidity.
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