Putting Cash to Credit
Overview
Improvement in supply chain bottlenecks is easing inflation pressures, as economies return to normalcy. Fed hawkishness may be sufficiently priced-in and peak bond yields may just be round the corner.
In the credit space, we maintain a preference for high quality developed market investment grade bonds. With the Fed maintaining a tightening bias during the quarter, quality bonds will be best positioned to withstand the rising rates given (a) stronger credit fundamentals and cash flow generation and (b) lower refinancing risks.
In such environment, we suggest investors look at high quality fixed income to stay in the sweet spot of 3 to 5 yearxs duration.
So, what would be our top fund ideas within these spaces?
Allianz Global Opportunistic Bond Fund ++++
What are the key characteristics of this fund?
- High Quality: Targets an overall investment grade rating, with an anchor in government bonds and >80% in developed market bonds (average credit rating ‘AA-’).
- Fund utilizes unconstrained top-down views and taps on its various alpha sources – Rates, Curve, FX, EM Debt, Credit and Structured Debt.
- Actively manage duration positioning in response to changes in market dynamics, such as price action/correlations, or views & conviction levels.
JPM Income ++++
What are the key characteristics of this fund?
- Flexible fixed income fund with a broad mandate and dynamic duration positioning. Seeks to pay predictable income of c.5-6% p.a.
- 3 core Fixed Income sleeves: Securitized Credit, Corporate Credit and Emerging Markets (EMD). Securitized features prominently and offers diversification to traditional bond portfolios.
- The fund has a controlled risk profile, targeting an annual volatility of 4-6%.
PIMCO GIS Income ++++
What are the key characteristics of this fund?
- Income-focused and targets a consistent level of income with capital appreciation.
- A multi-sector approach that seeks value across the global bond universe.
- Global exposure to government bonds, mortgage-backed securities, investment grade and high yield corporate debts and selective emerging debts
