global corporate bonds · 2020. 9. 17. · from rising stars to fallen angels but... fallen angels...
TRANSCRIPT
-
For institutional investors only / not for public viewing or distribution
Fixed Income Boutique
September 2020
How to benefit from
the current market
environment
Global Corporate Bonds
Christian Hantel
Portfolio Manager, Vontobel Fund – Global Corporate Bond Mid Yield
-
2
For institutional investors only / not for public viewing or distribution
Introduction
Global corporate bonds – enter a $16 trillion market….
Developed Markets Emerging Markets Other Markets
Source JPM, BofA Merrill Lynch as of August 2020; Indices used are from the BofA Index (Corporate) and JP Morgan (Emerging Markets) family.
IG: 8.2 trn / 8617 bonds
HY: 2.5 trn / 3613 bonds
United States / USD:
IG: 2.8 trn / 3587 bonds
HY: 0.38 trn / 650 bonds
Europe / EUR:
IG: 0.45 trn / 866 bonds
HY: 0.036 trn / 100 bonds
UK / GBP
IG: 0.71 trn / 953 bonds
HY: 0.44 trn / 689 bonds
(Hard Currency)
EM/ USD
-
3
For institutional investors only / not for public viewing or distribution
What happened?
Credit spreads gapped out to extreme levels
0
50
100
150
200
250
300
350
400
12
/20
19
1/2
02
0
2/2
02
0
3/2
02
0
4/2
02
0
5/2
02
0
6/2
02
0
7/2
02
0
8/2
02
0
Sp
rea
d in
Bp
s
ICE BofAML Global Corporate Index
Spread-Niveau am Anfang vom 2020
Deterioration / Panic
(February–March)
Recovery
(April to May)
Normalization
(since June)
Source: Vontobel Asset Management, Bloomberg, as of 04.09.2020.
-
4
For institutional investors only / not for public viewing or distribution
Credit cycle clock
Where are we in the credit cycle?
Source: Vontobel Asset Management
Deterioration Recovery
Expansion
– Deleveraging
– Margins/profits increase
– FFO grows
– Yields stabilize
– Spreads tighten
– Re-leveraging
– Aggressive M&A
– Debt grows faster than profits
– Yields rise
– Spreads initially tighten, then widen
– High leverage
– Margins under pressure
– Profits decline and asset prices fall
– Yields rise then decline
– Spreads widen
US
US
EU
EU
-
5
For institutional investors only / not for public viewing or distribution
From rising stars to fallen angels but...
Fallen angels (rating downgrades from BBB to BB)
USA Europe
Source: Goldman Sachs, as of 13.08.2020.
Rating downgrades include
KraftHeinz, Ford, Macy’s, etc.
Rating downgrades include Marks
& Spencer, Valeo, Wirecard, etc.
-
6
For institutional investors only / not for public viewing or distribution
…IG rating downgrades have largely dried up
Investment Grade downgrades, weekly downgrade volume US ($bn)
Source: Credit Suisse, as of 23.07.2020.
0
-50
-100
-150
-200
-250
-300
4.1
.2020
18.1
.2020
1.2
.2020
15.2
.2020
29.2
.2020
14.3
.2020
28.3
.2020
11.4
.2020
25.4
.2020
9.5
.2020
23.5
.2020
6.6
.2020
20.6
.2020
4.7
.2020
18.7
.2020
-
7
For institutional investors only / not for public viewing or distribution
Corporate cash at all-time highWeekly revolver & new loan volume
Companies acted prudently, building liquidity buffers…
Change YoY in Nonfinancial Cash (lhs)
Net Cash Positions (rhs)
$0.6 Tr
$0.8 Tr
$1.0 Tr
$1.2 Tr
$1.4 Tr
$1.6 Tr
$1.8 Tr
$2.0 Tr
$2.2 Tr
$2.4 Tr
-$400 bn
-$300 bn
-$200 bn
-$100 bn
$0 bn
$100 bn
$200 bn
$300 bn
$400 bn
$500 bn
$600 bn
1Q
10
1Q
11
1Q
12
1Q
13
1Q
14
1Q
15
1Q
16
1Q
17
1Q
18
1Q
19
1Q
20
Constituents are current S&P 500 nonfinancial companies. Source: Wells Fargo Securities, Bloomberg L.P., Dealogic, as of 21.08.2020.
Drawdowns New Loans
9.3
.20
20
16
.3.2
02
0
23
.3.2
02
0
30
.3.2
02
0
6.4
.20
20
13
.4.2
02
0
20
.4.2
02
0
27
.4.2
02
0
4.5
.20
20
11
.5.2
02
0
18
.5.2
02
0
25
.5.2
02
0
1.6
.20
20
8.6
.20
20
15
.6.2
02
0
22
.6.2
02
0
30
.6.2
02
0
Vo
lum
e (
$ B
illi
on
s)
100
90
80
70
60
50
40
30
20
10
0
-
8
For institutional investors only / not for public viewing or distribution
Top 10 US issuers in H1 (in bn)Issuers have pushed out maturities in the US
…and pushing out bond maturities
-116
226246
574
-200
-100
0
100
200
300
400
500
600
0-4 years 4-7 years 7-10 years 10+ years
YoY IG Maturity Bucket Change ($bn MV)COMPANY
Total Raised
$ €
Boeing 25’000
T-Mobile 24’250
Oracle 20’000
ExonMobil 18’000 4’500
Walt Disney 17’000
AT&T 14’250 5’000
Pfizer 12’700
BROADCOM 12’500
Coca-Cola 11’500 820
BP 9’500 8’000
Source: Credit Suisse, Wells Fargo, as of July 2020.
-
9
For institutional investors only / not for public viewing or distribution
Corporate bond gross issuance globally
Very high issuance levels YTD, in particular during March/April 2020
EuropeUSA
$1
44
6
0
200
400
600
800
1,000
1,200
1,400
1,600
0
200
400
600
800
1,000
1,200
1,400
1,600
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
$bn$bn
Rest of Year Year to date
€4
71
0
100
200
300
400
500
600
700
800
0
100
200
300
400
500
600
700
800
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
€bn€bn
Rest of Year Year to date
Source: Goldman Sachs, as of 13.8.2020.
-
10
For institutional investors only / not for public viewing or distribution
Corporate bond gross issuance – US example
Record year expected but activities should decline in H2
Monthly issuance (USD bn) Yearly issuance
Source: J.P. Morgan, Dealogic, as of 02.09.2020.
129
94
114
88
137
86 90 91
131
91 93
22
130
89
262
284
244
163
66
139
0
50
100
150
200
250
300
Ja
nu
ary
Fe
bru
ary
Ma
rch
Ap
ril
Ma
y
Jun
e
July
Au
gust
Se
pte
mb
er
Octo
ber
Novem
ber
Decem
ber
4Y Avg Gross Issuance (2016-2019) 2020 Gross Issuance
-
11
For institutional investors only / not for public viewing or distribution
Corporate bond yields versus average coupons
Source: BAML Research, Global Corporate Investment Grade Bond Index, as of 21.08.2020.
Bond tenders as a theme for Q4?
2% yields versus 4% coupons (US IG)
IG corporate yield (%) IG market weighted average coupon (%)
1
2
3
4
5
6
7
8
9
10
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
-
12
For institutional investors only / not for public viewing or distribution
Market segmentation created new dislocations
By detecting market inefficiencies in a liquid market…we optimize investments without increasing the portfolio risk
Past performance is not a reliable indicator of current or future performance.*Yields after hedging into USD; both bonds with similar duration. Illustrative example. Source: Bloomberg, Vontobel Asset Management, as of 23.08.2020.
-4
-2
0
2
4
6
8
10
12
/20
15
6/2
01
6
12
/20
16
6/2
01
7
12
/20
17
6/2
01
8
12
/20
18
6/2
01
9
12
/20
19
6/2
02
0
BAT 2% 2045 in EUR versus BAT 5.85% 2045 in USD
DIFF (EUR - USD) BAT EUR hedged BAT USD Bond
Yield*
USD Bond was more attractiveUSD Bond
is now more
attractive
EUR Bond was more attractive
-
13
For institutional investors only / not for public viewing or distribution
Amount of negative-yielding bonds globally
Source: Bloomberg, Vontobel Asset Management, as of 04.09.2020.
0
2
4
6
8
10
12
14
16
18
10
/01
/201
7
10
/07
/201
7
10
/01
/201
8
10
/07
/201
8
10
/01
/201
9
10
/07
/201
9
10
/01
/202
0
10
/07
/202
0
US
D t
rn
-
14
For institutional investors only / not for public viewing or distribution
Global Credit: the new low-risk source of yield
Recent yield assumptions act as tailwinds for total returns
Forecasts are not a reliable indicator of future performance.Longer-Term Return Assumptions. *Hedged in EUR. Source: Vontobel Asset Management, as of 03.06.2020.
~EUR
26 trillion ~EUR
11 trillion
-
15
For institutional investors only / not for public viewing or distribution
Vontobel Fund – Global Corporate Bond Mid Yield (G USD share class)
Fund characteristics
Fund Reference Index
01.09.2019-31.08.2020 6.59 5.63
01.09.2018-31.08.2019 12.58 12.00
01.09.2017-31.08.2018 0.68 0.20
01.09.2016-31.08.2017 3.88 2.14
Indexed net return
Net return (in %)Key figures
– Experienced portfolio manager with a proven track
record in managing global credit portfolios and
in-depth knowledge of credit analysis over 18 years
– Portfolio manager supported by a strong team of
8 professionals concentrating on global credit
– Fund offers global diversification in the most liquid
credit markets and also relative-value opportunities
among issuers
– Focus on an expanded and flexible Mid Yield
investment universe to maximize Investment
Grade returns
Christian Hantel
Portfolio Manager
Mondher Bettaieb Loriot
Head of Corporate Bonds
Deputy Portfolio Manager
90
100
110
120
130
140
10/2
015
1/2
016
4/2
016
7/2
016
10/2
016
1/2
017
4/2
017
7/2
017
10/2
017
1/2
018
4/2
018
7/2
018
10/2
018
1/2
019
4/2
019
7/2
019
10/2
019
1/2
020
4/2
020
7/2
020
Fund Reference Index
2.2
5.8
14.0
6.6
6.5
6.5
1.9
5.3
12.5
5.6 5.8
5.8
0
4
8
12
16
20
QTD YTD 2019 1 year 3 yearsp.a.
Sinceinception
p.a.
Fund Reference Index
Portfolio Reference Index
Modified duration (years) 7.42 7.21
Average Coupon 3.56 3.39
Number of positions 254 15569
Yield to maturity (LC, %) 2.37 1.69
Average Rating BBB A-
Active Share
(Country, Issuer, ISIN)16%/74%/98%
Past performance is not a reliable indicator of current or future performance. Performance data does not take into account any commissions and costs charged when shares of the fund are issued and redeemed, if applicable. The return of the fund may go
down as well as up due to changes in rates of exchange between currencies. Source: Vontobel Asset Management, Morningstar. Morningstar Rating as of 8.2020. ©2020
Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is
not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Morningstar RatingTM
FundVontobel Fund – Global Corporate Bond Mid Yield
(LU1309987045)
Reference
Index
Currently:
BofA Merrill Lynch Global Corporate Index Hedged
Since inception until 29.9.2016:
BofA Merrill Lynch Index, 50% US Large Cap
Corporate, 50% Pan Europe Large Cap Corporate,
customized Single A/BBBs
Currency USD
Inception Date 29.10.2015
Time Period 29.10.2015–31.8.2020
Rolling 12-month net returns (in %)
-
16
For institutional investors only / not for public viewing or distribution
How to benefit from the current market environment
Source: Vontobel Asset Management.
What’s in for the investor?
Global credit remains one of the few remaining ways to generate returns in this low yield environment.
1Extreme spread levels
have normalized: benefit
from carry and some
more spread tightening.
4New issues are
plenty and remain a
source to generate
outperformance.
2Focus on companies
that can weather
the storm: liquidity
assessment key
among others.
5Optimize your portfolio
by exploiting market
inefficiencies without
increasing portfolio risk.
3Avoid and/or revisit
Fallen Angels as
prices often overshoot.
6 Benefit from upcoming bond tenders.
-
For institutional investors only / not for public viewing or distribution
17
Appendix
-
18
For institutional investors only / not for public viewing or distribution
Credit spreads have tightened from the extreme
levels but are still attractive.
Global yields to stay lower for longer now, which
makes it hard to ignore credit as an asset class.
Macro indicators on negative trajectory, but swoosh
recovery likely.
Massive fiscal packages globally to mitigate the
COVID-19 impact, Europe in particular.
Central banks taking unprecedented actions, such
as the Fed corporate bond buying program.
Why we remain constructive on global credit
Macroeconomics Neutral to cautions
Valuation Positive
Technical Factors Very Positive
Mostly solid overall credit metrics, prudent liquidity
management, bond market open for refinancing's.
Q2 reporting season weak but not as bad as feared.
Rating downgrade trend has dried up most recently.
Significant inflows into global corporate bond funds
remain supportive.
New issue volumes slow down and new issue
premium getting smaller.
High demand from (overseas) investors results in
strongly oversubscribed order books for new issues.
Source: Vontobel Asset Management. Note: Please see our current market outlook for details. Our scorecard evaluates the four main driving factors for global credit: Macroeconomics (economic trend and
monetary policy), Microeconomics (corporate fundamentals), Technical factors (flows, new issues, etc) and Valuations. Our market outlook follows this structure.
Microeconomics Neutral to cautious
-
19
For institutional investors only / not for public viewing or distribution
Curriculum Vitae
Christian Hantel joined Vontobel Asset Management in October 2015 as Senior Portfolio Manager. He is responsible
for the Global Corporate Bond Strategy and manages corresponding funds.
Prior to joining Vontobel, from 2012 to 2015, he was Senior Portfolio Manager at Swisscanto Asset Management AG.
In this role, he managed Swisscanto corporate bond funds as well as multi-currency institutional mandates. He was also
lead analyst for various investment grade and high-yield sectors and corporates, including emerging market corporates.
From 2005, Christian worked at BNY Mellon Asset Management in Düsseldorf, heading the credit investment grade team
focusing on investment grade and high yield issuers, including the management of credit funds. Prior to that, he worked
for several years at PricewaterhouseCoopers in Corporate Finance/M&A.
Christian Hantel earned a Master’s in Business Administration from the University of Cologne and a Master‘s in
International Management from CEMS-HEC Paris. In 2011, he obtained his diploma as a Certified International
Investment Analyst (CIIA).
Christian Hantel
Senior Portfolio Manager
Executive Director
-
20
For institutional investors only / not for public viewing or distribution
Curriculum Vitae
Hubert de Froberville
UK Wholesale and Intermediaries
Director
Hubert joined Vontobel Asset Management in June 2015. He leads the sales and marketing to wholesale and intermediary
clients in the UK, as well as the development of platform relationships.
Prior to joining Vontobel, from 2008 to 2015, he worked at Lazard Asset Management, responsible for European Alternative
Investment sales and marketing, and at UBS Investment Bank from 2007 to 2008. He started his career in 2001 as Trader at
Schneider Trading Associates.
Hubert de Froberville holds a Bachelor of Arts in Philosophy and Economics (Hons) from University College, London, and
completed the Investment Management Programme at the London Business School.
-
21
For institutional investors only / not for public viewing or distribution
Investment risks of the Vontobel Fund – Global Corporate Bond Mid Yield
The listed risks concern the current investment strategy of the fund and not necessarily the current Portfolio.
Subject to change, without notice, only the current prospectus or comparable document of the fund is legally binding.
– The credit quality of the securities that the sub-fund
invests in can deteriorate. This means there is a risk that
the issuer of the securities cannot meet its obligations.
The value of this investment may fall if an issuer’s credit
rating is downgraded.
– Using derivatives results in corresponding counterparty
risks.
– The use of derivatives generally creates leverage. The
sub-fund is also subject to corresponding valuation risks
and operational risks.
– Asset-backed and mortgage-backed securities, and
their underlying receivables are often intransparent.
The sub-fund may also be subject to a higher credit
and/or prepayment risk.
– CoCo-Bonds may entail significant risks such as coupon
cancellation risk, capital structure inversion risk, call
extension risk.
-
22
For institutional investors only / not for public viewing or distribution
Disclaimer
This marketing document was produced for institutional clients, for distribution
in AT, CH, DE, ES, FR, GB, IT, LU, PT, SG (Professional Investors only).
This document is for information purposes only and does not constitute an offer,
solicitation or recommendation to buy or sell shares of the fund/fund units or any
investment instruments, to effect any transactions or to conclude any legal act
of any kind whatsoever. Subscriptions of shares of the fund should in any event
be made solely on the basis of the fund’s current sales prospectus (the “Sales
Prospectus”), the Key Investor Information Document (“KIID”), its articles of
incorporation and the most recent annual and semi-annual report of the fund
and after seeking the advice of an independent finance, legal, accounting and
tax specialist. This document is directed only at recipients who are institutional
clients such as eligible counterparties or professional clients as defined by the
Markets in Financial Instruments Directive 2014/65/EC (“MiFID”) or similar
regulations in other jurisdictions.
In particular, we wish to draw your attention to the following risks: Investments
in the securities of emerging-market countries may exhibit considerable price
volatility and – in addition to the unpredictable social, political and economic
environment – may also be subject to general operating and regulatory
conditions that differ from the standards commonly found in industrialized
countries. The currencies of emerging-market countries may exhibit wider
fluctuations. Investments in riskier, higher-yielding bonds are generally
considered to be more speculative in nature. These bonds carry a higher
credit risk and their prices are more volatile than bonds with superior credit
ratings. There is also a greater risk of losing the original investment and the
associated income payments. Investments in derivatives are often exposed
to the risks associated with the underlying markets or financial instruments, as
well as issuer risks. Derivatives tend to carry more risk than direct investments.
Investment universe may involve investments in countries where the local
capital markets may not yet qualify as recognized capital markets. Money
market investments are associated with risks of a money market, such as
interest rate fluctuations, inflation risk and economic instability.
Past performance is not a reliable indicator of current or future
performance. Performance data does not take into account any commissions
and costs charged when shares of the fund are issued and redeemed, if
applicable. The return of the fund may go down as well as up due to changes
in rates of exchange between currencies. The value of the money invested in
the fund can increase or decrease and there is no guarantee that all or part of
your invested capital can be redeemed.
Interested parties may obtain the above-mentioned documents free of charge
from the authorized distribution agencies and from the offices of the fund at
11-13 Boulevard de la Foire, L-1528 Luxembourg, the paying agent in Austria
Erste Bank der oesterreichischen Sparkassen AG, Graben 21, A-1010 Vienna,
the representative in Switzerland: Vontobel Fonds Services AG, Gotthardstrasse
43, 8022 Zurich, the paying agent in Switzerland: Bank Vontobel AG,
Gotthardstrasse 43, 8022 Zurich, the paying agent in Germany: B. Metzler seel.
Sohn & Co. KGaA, Grosse Gallusstrasse 18, 60311 Frankfurt/Main. Refer for
more information on the fund to the latest prospectus, annual and semi-annual
reports as well as the key investor information documents (“KIID”). These
documents may also be downloaded from our website at vontobel.com/am.
In Spain, funds authorized for distribution are recorded in the register of foreign
collective investment companies maintained by the Spanish CNMV (under
number 280). The KIID can be obtained in Spanish from Vontobel Asset
Management S.A., Spain Branch, Paseo de la Castellana, 95, Planta 18, E-
28046 Madrid or electronically from [email protected]. The KIID
is available in French. The fund is authorized to the commercialization in France
since 26-MAY-16. Refer for more information on the funds to the Document
d’Information Clé pour l’Investisseur (DICI).
-
23
For institutional investors only / not for public viewing or distribution
Disclaimer
The funds authorized for distribution in the United Kingdom can be viewed
in the FCA register under the Scheme Reference Number 466625. This
information was approved by Vontobel Asset Management SA, London Branch,
which has its registered office at Third Floor, 22 Sackville Street, London W1S
3DN and is authorized by the Commission de Surveillance du Secteur Financier
(CSSF) and subject to limited regulation by the Financial Conduct Authority
(FCA). Details about the extent of regulation by the FCA are available from
Vontobel Asset Management SA, London Branch, on request. The KIID can
be obtained in English from Vontobel Asset Management SA, London Branch,
Third Floor, 22 Sackville Street, London W1S 3DN or downloaded from our
website vontobel.com/am. Refer for more information regarding subscriptions in
Italy to the Modulo di Sottoscrizione. For any further information: Vontobel Asset
Management S.A., Milan Branch, Piazza degli Affari 3, 20123 Milano, telefono:
0263673444, e-mail [email protected]. Please note that certain
subfunds are exclusively available to qualified investors in Andorra or Portugal.
The fund and its subfunds are not available to retail investors in Singapore.
Selected subfunds of the fund are currently recognized as restricted schemes
by the Monetary Authority of Singapore. These subfunds may only be offered
to certain prescribed persons on certain conditions as provided in the “Securities
and Futures Act”, Chapter 289 of Singapore. The fund is not authorized by the
Securities and Futures Commission of Hong Kong. It may only be offered to
those investors qualifying as professional investors under the Securities and
Futures Ordinance. The contents of this document have not been reviewed by
any regulatory authority in Hong Kong. You are advised to exercise caution and
if you are in any doubt about any of the contents of this document, you should
obtain independent professional advice. This information was approved by
Vontobel Asset Management Asia Pacific Ltd., which has its registered office at
1901 Gloucester Tower, The Landmark 15 Queen’s Road Central, Hong Kong.
© 2019 Morningstar, Inc. All rights reserved. The information contained herein:
(1) is proprietary to Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be accurate, complete, or
timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information.
This document is not the result of a financial analysis and therefore the
“Directives on the Independence of Financial Research” of the Swiss Bankers
Association are not applicable. Vontobel Asset Management AG, its affiliates
and/or its board of directors, executive management and employees may have
or have had interests or positions in, or traded or acted as market maker in
relevant securities. Furthermore, such entities or persons may have executed
transactions for clients in these instruments or may provide or have provided
corporate finance or other services to relevant companies.
Although Vontobel Asset Management AG (“Vontobel”) believes that the
information provided in this document is based on reliable sources, it cannot
assume responsibility for the quality, correctness, timeliness or completeness
of the information contained in this document. Except as permitted under
applicable copyright laws, none of this information may be reproduced, adapted,
uploaded to a third party, linked to, framed, performed in public, distributed or
transmitted in any form by any process without the specific written consent of
Vontobel. To the maximum extent permitted by law, Vontobel will not be liable
in any way for any loss or damage suffered by you through use or access to
this information, or Vontobel’s failure to provide this information. Our liability
for negligence, breach of contract or contravention of any law as a result of our
failure to provide this information or any part of it, or for any problems with this
information, which cannot be lawfully excluded, is limited, at our option and to
the maximum extent permitted by law, to resupplying this information or any
part of it to you, or to paying for the resupply of this information or any part of
it to you. Neither this document nor any copy of it may be distributed in any
jurisdiction where its distribution may be restricted by law. Persons who
receive this document should make themselves aware of and adhere to any
such restrictions. In particular, this document must not be distributed or handed
over to US persons and must not be distributed in the USA.