Thu, 19/06/2014 - 10:05
The Swiss banking group SYZ & CO has launched OYSTER Flexible Credit, a new sub-fund of its Luxembourg Sicav, employing a credit strategy combining European corporate bonds with flexible market exposure hedging.
The annualised return objective is eight per cent with a Sharpe ratio of one over a whole credit cycle.
Management of the fund has been entrusted to Eiffel Investment Group, a Paris-based management company specializing in these strategies.
The fund is a “NewCITS” product, which means it takes advantage of the changes in the European UCITS standard to propose an unconventional strategy that effectively meets investors’ expectations.
The European corporate bond market is expanding fast but remains highly fragmented. There are more than EUR2,200 billion worth of corporate bonds and loans outstanding. Growth is strong since a record EUR90 billion worth of new high-yield bonds were issued in 2013, about 30 per cent of which were from new entrants. This expansion is likely to continue because the trend towards disintermediation is only just beginning in Europe, with 70 per cent of credit still provided by the banks, as against 30 per cent in the US.
Constructed according to a "bottom-up" approach, the portfolio should number between 30 and 40 positions in credit instruments of European companies and financial institutions, placing the emphasis on special situations. By means of in-depth fundamental analysis, the manager seeks to identify loans that have been inaccurately valued or poorly understood by the market.
The main drivers of alpha generation are the special situations for which a triggering factor is identified; they make up the core of the portfolio, along with paper offering an excess return (“carry”), undervalued securities (“value”) and short-term trading in special cases. Furthermore, the fund manager manages market risk exposure very flexibly, mainly through positions on indices. Net exposure to the credit market may therefore vary between -25 per cent and 150 per cent, which enables the fund manager to protect capital in periods of stress but also to amplify gains during buoyant markets.
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