Investment Grade Credit

Capture the return potential of corporate bonds with a systematic approach

Corporate bonds are once again an attractive investment alternative for investors, especially as central banks continue to raise interest rates. In order to maximise return opportunities, minimise risk and increase portfolio diversification, a quantitative investment process with active management is recommended.

By opting for a broadly diversified investment grade corporate bond strategy, institutional investors can benefit from positive interest income and additional yield relative to government bonds, with manageable credit risks.

Our research shows that both fundamental and quantitative approaches can outperform their benchmarks over time, but that the sources of this outperformance are different. Investors can take advantage of these diversification benefits by adding a multi-factor strategy to their credit allocation. Over time, this will lead to more stable overall credit portfolio performance and unlock new sources of outperformance.

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Credit factor investing

Tapping into scientifically proven sources of return

Our investment grade credit strategy combines the factors value, momentum and carry. These factors have proven to be statistically significant indicators of alpha over many years of research and form the basis of our forecasts. We apply a model-driven, quantitative process that can consistently and objectively calculate factors for a universe of 15,000 bonds.

Multi-factor forecast signal – combination of three single signals
  • Value

    Undervalued, inexpensive bonds perform better than overvalued or expensive ones.

  • Momentum

    Bonds of companies with positive stock price momentum outperform those of companies with weak momentum.

  • Carry

    Bonds with higher spreads and a steeper yield curve generate higher returns.

However, as the individual factors perform differently in different cycles, it makes sense to combine them into a multi-factor signal as part of a forecasting process. This approach can tap into existing premiums in the market in a more stable way than individual signals.

Corporate bond factors: Systematic performance over many years
Global IG credit top 20% portfolio: Relative performance per factor vs global senior IG benchmark for the period December 31, 2004 to June 30, 2023. Source: Quoniam Asset Management GmbH

Momentum and value have consistently outperformed the benchmark year after year. However, during times of crisis, both factors tend to have a negative correlation. While carry can provide additional value, it often experiences significant drawdowns. The combination of multiple factors provides the highest alpha and delivers stable added value over time.

Your advantages

A systematic selection process based on factors opens a wider investment universe and greater return potential.

Factor investing relies on a large number of small, active positions leading to a high degree of diversification and low tracking error.

Investing in a multi-factor strategy can lead to a more stable overall credit portfolio performance and capture new sources of outperformance.

“Systematic factor strategies can unlock hidden sources of return and risk that traditional, discretionary strategies often cannot.”
Dr Harald Henke, Head of Fixed Income Strategy

Credit factor investing as a solution to combining sustainability and outperformance

Our credit strategy can be implemented in different investment universes and can be flexibly adapted to individual ESG requirements. What is the ex-ante impact of different sustainable investment approaches on the alpha of a credit portfolio? And what can investors do who want both outperformance and sustainable credit investments? Credit factor investing provides a framework and a solution to both questions.

“Investors with a sustainability focus do not need to give up on their outperformance goal when using factor investing. Our research results show that systematic approaches are well-suited to implement SI strategies and achieve outperformance at the same time.”
Dr Veronika Herzberger, CFA, Head of Fixed Income Portfolio Management

Find our detailed study on the interaction of sustainability and systematic credit factor exposures here:

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Thought Leadership

Pioneering fixed income factor investing

Cutting edge research is at the heart of our investment process. Quoniam has made significant contributions to thought leadership on fixed income factor investing since its first application in 2005.


Interested? Get in touch with me.

We would be happy to talk to you about your investment goals and their implementation. Contact me and we will analyse, without obligation, which strategy is the most suitable for you.

Jorre Willemse, CAIA
Head of Client Relations International
T +44 (0) 203 2162 427

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