High yield markets consist of a diverse range of issuers. Whether fallen angels or rising stars, investors require a strategy that captures the opportunities in the higher quality buckets, while avoiding the issuers heading for downgrades and defaults.
The Quoniam Global High Yield MinRisk strategy combines active stock selection with portfolio diversification in a systematic approach and exploits anomalies. Designed as a short duration strategy, we invest primarily in the higher quality segment of the high yield market and limit risk through multi-dimensional diversification.
THE QUONIAM SOLUTION
Less risk often means more return
Our MinRisk approach is designed to target the sweet spot of the high yield market and systematically reduce concentration risk. By avoiding high individual issuer and sector risks, we significantly improve diversification compared to a standard index.
The strategy aims to maximise the Sharpe Ratio and improve risk-adjusted performance independently of a benchmark. MinRisk stands for strict risk management, independent of index characteristics, and a high level of diversification across multiple risk dimensions.
High Yield MinRisk: Focus on the optimal risk/return ratio
OUR APPROACH
Connecting different performance sources
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Exploitation of anomalies
To achieve a higher risk-adjusted return, we exploit existing capital market anomalies.
The low-volatility anomaly: Contrary to classical capital market theory, lower risk does not necessarily mean lower returns.
The spread anomaly: Bonds with very high spreads deliver lower risk-adjusted performance because their probability of default is very high. Bonds with low credit spreads relative to their peers tend to lag the market. Selected high yield bonds with medium risk have yield advantages – this is the so-called “sweet spot”.
The duration anomaly: Short-term bonds tend to have lower volatility, but historically this has been associated with higher risk-adjusted returns. The return per unit of risk for short-term bonds tends to be higher than for long-term bonds.
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Multi-dimensional diversification
Traditional credit indices tend to have high issuer and sector concentrations. As a result, 10% of the index constituents can account for around 50% of the index weighting, with highly indebted issuers more prominently represented in the index. This is particularly relevant for the riskier part of the investment universe. Being too close to a high yield benchmark inevitably leads to defaults and the associated losses. The Quoniam strategy therefore invests independently of the benchmark, with security-specific position limits.
The strategy increases diversification by constructing a portfolio with the following risk characteristics relative to the benchmark: sector risk parity, a large number of issuers, a higher position in EUR-denominated issues and shorter maturities.
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Active security selection and risk management (multi-factor model)
We use our proprietary multi-factor forecasting model to select securities. The key advantage: when applying the factor approach, the model decomposes a bond’s expected return into systematic factors associated with risk premia. These hidden sources of return are often missed by traditional discretionary strategies.
ESG: All Quoniam mutual funds apply an integrated ESG approach. Individual client guidelines can be implemented in mandates.
YOUR ADVANTAGES
High Yield MinRisk at a glance
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Reduced risk: The Quoniam High Yield MinRisk Global strategy offers investors a risk-reduced entry into the high yield corporate bond market. -
Increased diversification: The benchmark agnostic approach helps to avoid concentration risks and diversify portfolios across multiple dimensions.
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Better drawdown protection: The High Yield MinRisk strategy has proven its added value in various crises and has mitigated losses.
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More sources of return: Implementing bond selection through the multi-factor quantitative forecasting model enables a daily valuation of the entire global universe, which can enhance returns.
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Improved risk/return ratio: The strategy uses scientific evidence to improve risk-adjusted returns.
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EXPERT VIDEO
How to find the sweet spot
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CONTACT
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.
Contact
Jorre Willemse
