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Clients are asking details on the investment process we follow and if we apply an initial screen based on yield.

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  • January 2020
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  • Clients are asking details on the investment process we follow and if we apply an initial screen based on yield.

Context:Understanding the four steps investment process and how we evaluate the holdings we invest in

Impact for the fund:The investment philosophy of Atlanticomnium in the process leading to the investment decisions

When analyzing potential investment ideas, we conduct a detailed process to ensure that the potential bond fits our strict criteria
 

This starts with detailed analysis of the issuer (analysis of financial statements, meeting with senior management, etc.) to identify conviction issuers that are consistent with our investment philosophy of capturing high income from bonds of very high-quality issuers. Once we have identified high-quality issuers that fit our criteria, we analyze the instrument itself (understanding the capital structure, term and conditions of the bonds, regulation etc.) to understand the potential upside and downside risk and the attractiveness of the bond structure. When we have identified the attractive bond(s) of high conviction issuers, we then look at valuations to ensure that the bonds add value to the portfolio. We look at a range of indicators such as yields, spreads, potential for price appreciation, volatility. We do not have a pre-defined yield or spread level under which we do not invest, as this depends on market conditions (level of interest rates, spread levels in the market, etc.). However, we will only make investments that make sense in our portfolio context, following the investment philosophy of capturing high income in high quality issuers.

Finally, we constantly review the portfolio, adding issues that complement the existing holdings, based on relative value and on a risk-adjusted basis. We consider the management of credit risk to be of prime importance. The rigorous bottom-up approach to choosing companies and issues in which to invest embodies very careful consideration of both the return potential and risk of each credit investment throughout the investment process. To this end, the fund managers closely monitor daily changes in:

– Average credit rating across each fund
– Individual credit ratings and how they influence investor behavior
– Prices of both the bonds and their related stocks
– Relative positions between similar instruments and ratings
– Liquidity across each fund and of individual positions
We maintain a strong focus on liquidity throughout the investment process, with the majority of
holdings within the portfolio typically classified as very liquid or liquid. Liquidity risk is further mitigated by diversification across a large number of positions of different types such as fixed, fixed to floating, floating
senior, junior, higher coupon and lower coupon bonds which each behave differently from one another
with the aim to always own some holdings that will be attractive to buyers at different times and in different market environments. Furthermore, the investment team monitors daily liquidity changes closely across the funds as a whole and of the individual underlying positions.
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