{"id":17540,"date":"2022-03-03T07:54:06","date_gmt":"2022-03-03T07:54:06","guid":{"rendered":"https:\/\/www.quoniam.com\/?p=17540"},"modified":"2025-08-29T08:35:27","modified_gmt":"2025-08-29T08:35:27","slug":"diversifying-credit-portfolios","status":"publish","type":"post","link":"https:\/\/www.quoniam.com\/en\/article\/diversifying-credit-portfolios\/","title":{"rendered":"Diversifying credit portfolios with factor investing"},"content":{"rendered":"\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Why should investors consider including systematic factor strategies in their credit allocations? What can they expect from such a multi-factor approach, and what distinguishes this approach from traditional fundamental analysis and portfolio construction? We used an extensive sample of global IG and Euro IG credit funds from a fundamental peer group to compare the characteristics of these funds with Quoniam\u2019s multi-factor approach using five years of data.<\/p>\n<\/div><\/div>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<h5 class=\"wp-block-heading\"><strong>We asked the following questions<\/strong>:<\/h5>\n\n\n\n<ul class=\"wp-block-list\"><li>How does multi-factor credit differ in its characteristics from the fundamentally managed credit in existing funds?<br><\/li><li>How does combining the two approaches alter an investor\u2019s overall portfolio performance features?<br><\/li><li>What makes multi-factor credit work differently than fundamental credit?<\/li><\/ul>\n<\/div><\/div>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<h5 class=\"wp-block-heading\" id=\"unterscheidungsmerkmal-1-komplexitat-der-anlageklassen\">The results reveal significant differences between the two approaches:<\/h5>\n\n\n\n<ul class=\"wp-block-list\"><li>Fundamentally managed funds, on average, tend to have a much stronger correlation with the direction of spread changes in the market. These funds outperform in falling-spread environments and underperform when spreads rise. Conversely, the multi-factor strategy has a much lower correlation with market direction.<br><\/li><li>Portfolios following these two different management styles tend to have lowly correlated alphas. Hence, a combination of these two strategies can offer diversification benefits to investors.<br><\/li><li>The combination of fundamentally managed and quantitative funds tends to significantly reduce the tracking error of the combined portfolio without significantly reducing the overall performance characteristics.<br><\/li><li>The factor portfolio loads on various systematic factors and the combined multi-factor signal aligned with its strategy. On average, fundamental portfolios only load on the carry factor and have considerably lower quality exposure than their respective benchmarks. This is partially driven by the high yield allocation of portfolios of more than 10% on average.<\/li><\/ul>\n<\/div><\/div>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<h5 class=\"wp-block-heading\">Conclusion<\/h5>\n\n\n\n<p class=\"wp-block-paragraph\">In sum, while fundamental and quantitative approaches each have their merits and can outperform their benchmarks over extended periods of time, the sources of this outperformance are different, which leads to very different alpha and tracking error characteristics. Investors can capitalise on these diversification benefits by adding a multi-factor strategy to their fundamentally managed credit allocation. Over time, this will lead to a more stable overall credit portfolio performance and capture new sources of outperformance.<\/p>\n<\/div><\/div>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Read the full Quoniam &#8211; White Paper Credit Factors:<\/strong> <\/p>\n\n\n\n<p><a class=\"btnFullDown\" href=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2022\/03\/Quoniam-White-Paper-Credit-Factors-Feb-2022.pdf\" target=\"_blank\" rel=\"noopener\">PDF Download<\/a><\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h6 class=\"has-text-align-center wp-block-heading\">YOU MIGHT ALSO BE INTERESTED IN<\/h6>\n\n\n\n<div class=\"wp-block-group alignfull\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n\n\n        <div class=\"newsSliderWrapper qm-element\" style=\"--color:;\">\n            <div class=\"newsSlider\">\n                                    \n                    <div class=\"slide\">\n                    \n                        <div class=\"newsTeaserWrapper cell\">\n                                                            <a href=\"https:\/\/www.quoniam.com\/en\/article\/current-inflation-rate-fed\/\" title=\"Is the Fed about to make a mistake?\">\n                                    <div class=\"newsTeaser\">\n                                        <div class=\"image\">\n                                            <img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2022\/02\/DW_insihgts_FED_HH-scaled-448x220-c-default.jpg\" loading=\"lazy\"\/>\n                                        <\/div>\n                                        <div class=\"info\">\n                                            <div class=\"preHeader\">\n                                                <div class=\"cat\">\n                                                    Article\n                                                <\/div>\n                                                <div class=\"date\">\n                                                    February 2022\n                                                <\/div>\n                                            <\/div>\n                                            <div class=\"headline\">Is the Fed about to make a mistake?<\/div>\n                                            <div class=\"introText\">\n                                                                                                    <p>The Fed has announced an aggressive monetary policy response to current inflation rates with several rate hikes this year. 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We used an extensive sample of global IG and Euro IG credit funds from a fundamental peer group to compare the characteristics [&hellip;]<\/p>\n","protected":false},"author":15,"featured_media":17658,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"Diversifying credit portfolios with factor investing","_seopress_titles_desc":"Why should investors consider including systematic factor strategies in their credit allocations?","_seopress_robots_index":"","footnotes":""},"categories":[44,115],"tags":[64,84,120],"class_list":["post-17540","post","type-post","status-publish","format-standard","has-post-thumbnail","category-article","category-artikel-en","tag-factor-investing","tag-fixed-income","tag-whitepaper"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/17540","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/comments?post=17540"}],"version-history":[{"count":52,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/17540\/revisions"}],"predecessor-version":[{"id":18974,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/17540\/revisions\/18974"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/media\/17658"}],"wp:attachment":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/media?parent=17540"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/categories?post=17540"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/tags?post=17540"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}