Sneak peek: HedgeNordic Fixed Income Report

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Stockholm (HedgeNordic) – In its special report on Fixed Income due for publication next week, HedgeNordic offers a panoramic view of the Fixed Income universe in the Nordics, and beyond. Amid a low-yield, zero-interest rate and highly volatile environment, there are as many questions outstanding as there are enterprising answers and strategic adjustments. And yet, all is not bleak: if necessity is the mother of invention, a diverse range of fund managers here describes new launches, new ideas to tackle old thinking, and their overall vision on a number of instruments comprising the Fixed Income habitat in 2016.

At the positive end of the spectrum, the report first gives an overview of how Nordic Fixed Income Hedge Funds have ended the first half of 2016 on a new high, as measured by the NHX Fixed Income Index. This is a far cry from the 2008 financial crisis for Fixed Income funds, where the category had been by far the biggest loser, before recovering in 2010 and having outperformed the NHX composite Index on average since then. Danish funds dominate the Nordics when it comes to Fixed Income investing, with the top five names over the past 36 months all being Danish.

Denmark thereby plays a prominent role across the report. 2015 Nordic Hedge Award winners Asgard Fixed Income fund, advised by Copenhagen’s Moma advisors Morten Mathiesen, Jesper Obeling Kring and Jørgen Jørgensen, explain their hiring of PM Daniel Vesterbaek Pedersen, “one of the best credit managers in Scandinavia,” to launch a new liquid credit strategy. The Moma advisors talk about how they intend to apply their tried and tested proprietary analytical and risk management techniques to this new field.

Moreover, the report offers a look at the fine SRI/ESG records of Danish Fixed Income funds Nykredit KOBRA, the PFA Investment fund (formerly Midgard Fixed Income) and Danske Invest’s Fixed Income funds. The adoption of SRI/ESG standards across the Fixed Income universe in Denmark is emblematic of the country’s commitment to optimizing financial gain in tandem with social and civic advancement. As such, it may prove a model to funds in other countries wavering over the adoption of SRI/ESG due to concerns over the detriment to short-term performance in favour of unpredictable long-term effects of UNPRI standards. As these standards themselves demonstrate, however, there are a number of areas, such as downside protection and corporate governance, in which Fixed Income and SRI/ESG are a natural fit.

But discussion of the present difficulties of the global environment looms large: Business Development Director Sebastian Vargas, CFA, of Eaton Vance speaks to HedgeNordic of investors reallocating to higher yielding assets targeting opportunities in the US leveraged credit market amid an environment of tepid economic growth, record low government bond yields and the prospect of lower-for-longer interest rates. US high yield bonds and floating-rate loans offer a compelling risk/return proposition, and Eaton Vance believes its leveraged credit capability offers investors strong options in an environment of anaemic real economic growth.

Meanwhile, Ben Hayward, Partner and PM of TwentyFour Asset Management, urges investors to take a close look at the benefits of the European ABS (Asset Backed Securities) market, which, Mr Hayward argues, is distinctly different from the American one, which remains anathema to many because of its role in the financial crisis. Now is an opportune time to invest in European ABS, he suggests, given their attractive yields, improving fundamentals, limited supply and potential for capital gains if spreads tighten.

AXA Investment Managers’ Eric Lhomond, Global Head of Alternative Credit, for his part explains how AXA IM provides an agile, diverse and dynamic approach to diversifying traditional credit portfolio at a time when government and most other quoted debt offers investors limited upside potential and lower-than-usual compensation for the risk of default.

Tom Ross, Co-Manager of the Henderson Horizon Global High Yield Fund, makes a compelling case for the space high yield bonds occupy in the investment world as a valuable diversifier within a fixed income portfolio. Mr Ross discusses the launch of Henderson’s global high yield strategy in 2013, which allows it to select from growing issuance in Europe and emerging markets. Its global vision, which also seeks out opportunities in smaller and lower rated credits too small for very big funds, has allowed the fund to outperform its benchmarks and passive high yield ETF’s.

Elsewhere, in a whirlwind overview, Gregor Gawron, Head of Insurance Linked strategies at Lombard Odier Investment Managers, discusses Lombard’s recently launched CAT Bond Fund, a weekly dealing UCITS that targets long-term returns from owning and trading CAT funds. In his overview of insurance linked strategies, uncorrelated risk premia and active management, Mr Gawron explains how the lack of correlation between so-called “catastrophe bonds” with macroeconomic variables makes them relevant for investors seeking diversification away from equities while securing returns amid the current low-yield and volatile environment.

Closer to home, HedgeNordic talked to family offices and other wealth managers for their perspectives on how to obtain yield in the zero interest rate environment, with asset allocators with a Fixed Income component in their portfolios now faced with the dilemma of how to cope with the fact that previously high yielding assets are now becoming liabilities. The answers differed dramatically.

But all hope is not lost. Analyst Hamlin Lovell suggests there is an oasis of yield lying hidden in the NIRP desert of the trillions’ worth in sovereign and corporate debt with negative yields relating to sovereign and some investment grade corporate credit in Europe and Japan. Instead, he argues there are trillions’ worth of corporate and asset backed securities, and associated structured credit, that still offer positive yields, and where the Nordics offer a diverse suite of credit opportunities.

KAMES co-manager Euan McNeil’s commentary comes on the heels of a very strong year for the fund. He explains to HedgeNordic how because of expensive valuations, the technicals remain supportive for the KAMES Investment grade global bond fund’s current strategies.

Finally, HedgeNordic sat down with Christopher Reeve of Aspect Capital, Alexander Mende of RPM, Niels Kastrup Larsen of Dunn Capital, Serge Houles of IPM and Despina Xanthopoulou of Lynx to discuss how Systematic Trend-Following Futures Strategies, or CTAs, will cope with the nearing end of a bond super-cycle, having benefited from the sustained decline in global interest rates over the past few decades. With bond markets approaching extreme valuations, how will quantitative strategies adapt to coping with an interest rate environment never before experienced?

All in all, an excellent read, if we may say so! Available September 15.

Picture: (c) Everett-Collection—shutterstock.com

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About Author

Glenn W. Leaper, Associate Editor and Political Risk Analyst with Nordic Business Media AB, completed his Ph.D. in Politics and Critical Theory from Royal Holloway, University of London in 2015. He is involved with a number of initiatives, including political research, communications consulting (speechwriting), journalism and writing his post-doctoral book. Glenn has an international background spanning the UK, France, Austria, Spain, Belgium and his native Denmark. He holds an MA in English and a BA in International Relations.

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