Fixed income: diversification as a success factor

Research proves it: a multi-factor approach offers investors greater diversification in terms of universe and the risk and return profile of funds than traditional fundamental managers.

We have been managing multi-factor corporate bond strategies with individual risk/return profiles in the investment grade and high yield segments for over 18 years. Thanks to our long experience, our models and processes reflect the learning curve over different market cycles. They incorporate factors that reflect stable economic relationships over the long term and have historically proven predictive power.

Investment Grade CREDIT

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.

Key points of the strategy

• Factor-based valuation: We use factors to determine whether a bond is attractive.
• Systematic portfolio construction: Our data-driven approach allows us to compare the risk/return profiles of different bonds. 
• Risk modelling: Risk models complement our return forecasts to reflect the risks of bonds in portfolio construction to avoid rating downgrades. 

Our credit strategy can be implemented in different investment universes and can be flexibly adapted to individual ESG requirements.

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High Yield

Exploiting opportunities – Reducing risks

The high yield strategy focuses on BB and B corporate bonds in the sweet spot. Our proven factor model is used to evaluate the individual bonds.

Key points of the strategy

• Sweet spot bonds avoid extremes: We avoid bonds with very high credit spreads as well as bonds with very low spreads. This reduces risk and ensures efficient capital allocation. 
• Diversification: To avoid cluster risks, we limit the weight of individual issuers. We also allocate equal risk weights across sectors to achieve optimal diversification.
• Multi-factor approach: Our factor model is tailored to the high yield segment and uses the factors value, momentum, quality and carry.

We can implement the strategy integrating ESG-criteria in a variety of investment universes.

Aggregate

Combined expertise

The aggregate strategy invests in government and corporate bonds. We use our proven multi-factor model to assess the return potential of each bond.

Key points of the strategy

• Multiple sources of return: We use our proven multi-factor model, which includes the factors value, momentum and carry, as well as further economic indicators for interest rate forecasts. 
• Broad diversification: The strategy diversifies across bond segments and interest rate markets. 
• Optimised duration: We position the duration within the yield curves of the various currencies and countries for optimised interest rate management. 

We can implement the strategy integrating ESG-criteria in a variety of investment universes.

MinRisk

Diversification and risk reduction

The so-called “low volatility” anomaly from empirical capital market research describes the observation that lower risk does not necessarily mean lower return. The Quoniam MinRisk strategy is specifically positioned in the middle of the risk spectrum, where the probability of a combination of controlled risk and positive return is higher.

Key points of the strategy

• Risk reduction: we aim for low volatility in the overall portfolio. 
• Broad diversification: the MinRisk approach limits the maximum size of individual issuers, countries and sectors. The more even weighting means that there are fewer cluster risks. 

The MinRisk strategy is often combined with other strategies. For example, as an investment grade MinRisk strategy or as high yield MinRisk strategy.

Defensive

The alternative to money market

The defensive strategy offers institutional investors an interesting alternative to money market investments. “Defensive” means short duration. To reduce the risk of loss when interest rates rise, we reduce the duration of the portfolio using exchange-traded interest rate futures. Further benefits arise when combined with our MinRisk approach. 

Key points of the strategy

• Low duration: The initial portfolio is a corporate bond portfolio with medium term maturities. After the duration hedge with interest rate futures, corporate credit risk remains as the source of return.
• Broad diversification: The MinRisk approach limits the maximum size of individual issuers, countries and sectors. 
• High liquidity: All bonds can be sold within a short period of time. 

The defensive strategy can be used in combination with various investment strategies.