Fallen Angels Recovery

    Rethink High Yield Investment.

    Fallen angels are bond issuances which are downgraded from Investment Grade to High Yield.

    We believe these can offer more favourable risk-return than standard HY bonds during market recoveries as well as in more benign markets.

    From our research, fallen angels performance is a combination of price recovery and carry whereas high yield performance is driven just by carry.

    In our opinion Fallen Angels can provide convex high-yield exposure.1

     

    A compelling opportunity in a yield-hungry world.

     

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    Market inefficiency in over-reaction
    Trade wider than equivalently-rated high yield issues and take up to two years to recover

    Credit’s sweet spot
    In our view, attractive risk-adjusted return characteristics for long-term outperformance and income potential in “BB” ratings.2

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    Through the cycle
    Potentially out-perform high yield under regular market conditions and materially out-perform immediately after periods of market turmoil.

     

     

    Why invest?

    A research-driven fund offering ‘through the cycle’ risk-adjusted returns.

     

    Exploit valuation over-reaction on downgrade to HY

    Research shows that spreads of issues downgraded from IG:

    • Are higher than BB rated peers.

    • Recover within a two-year period.

    • Offer better returns & Sharpe ratio than IG, BBB, BB & HY regardless of the market cycle.

     

    A structured & disciplined approach

    Deep expertise in combining qualitative & systematic approaches:

    • Systematic top-down approach used to construct the portfolio incorporating the opportunities identified by LOIM research.

    • Bottom-up contribution from by credit analysts to enhance returns, avoid falling knives and reduce credit risk.

    • Incorporating LOIM’s expertise in sustainability, decarbonisation and ESG.

    Deliver higher returns through the cycle

    Global strategy

    Mitigating risk and exploiting bottom-up opportunities

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    Combining LOIM’s expertise to deliver higher potential return:


    • The fund associates LOIM’s leading market research & analysis, in depth fundamental credit analysis, systematic capabilities and crossover experience.
    • Sustainability is embedded in our investment decisions.

    Some key features:


    Diversification: c.100 issuers.
    Tracking error: < 3%.
    Investment universe: Global Fallen Angels with flexibility to invest outside of the investment universe.
    Duration: Aligned with the Bloomberg Global High Yield Corporate TR Index Value USD Unhedged.
    Average credit rating: BB.2

    In summary: 
     

    Identification: Identifying bottom-up opportunities and monitoring risks.
    Analysis: Placing the assessment of opportunities and risks at the heart of the process (fundamental analysis, technical factors, relative value).
    Action: Exploiting bottom-up opportunities to generate additional return, while minimising default risk to avoid potential negative impacts.

    1Source: LOIM. For illustrative purposes only.  Due to their speculative nature, bonds rated BB have a higher default risk and may generate a capital loss.
    2Source: For illustrative purposes only. There can be no assurance that the investment objective will be achieved or that there will be a return on capital or that a substantial loss will not be incurred. Due to their speculative nature, bonds rated BB have a higher default risk and may generate a capital loss.

    investment team.

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    Ashton Parker
    Lead Portfolio Manager
    Head of Credit Research

    locomauthorsam-collet (LOcom_AuthorsAM-Collet) Jérôme Collet
    Senior Portfolio Manager 
    Head of Beta Management
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    Anando Maitra
    Portfolio Manager 
    Head of Systematic Research

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    Denise Yung
    Portfolio Manager
    Crossover Credit

    Investment philosophy and process

    Our investment approach combines alpha and beta management to mitigate risk and drawdowns, whilst exploiting bottom-up opportunities. 


    Fallen Angels-investment approach-01.svg

    1Source: LOIM. For illustrative purposes only. Due to their speculative nature, bonds rated BB have a higher default risk and may generate a capital loss.

    important information.

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