{"id":205177,"date":"2024-09-24T12:38:22","date_gmt":"2024-09-24T12:38:22","guid":{"rendered":"https:\/\/www.quoniam.com\/?p=205177"},"modified":"2024-09-24T14:17:54","modified_gmt":"2024-09-24T14:17:54","slug":"global-corporate-bonds","status":"publish","type":"post","link":"https:\/\/www.quoniam.com\/en\/article\/global-corporate-bonds\/","title":{"rendered":"Global corporate bonds systematically managed"},"content":{"rendered":"\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h5 class=\"wp-block-heading\">Corporate bonds are back<\/h5>\n\n\n\n<p class=\"wp-block-paragraph\">Investors have been dealing with a prolonged period of low corporate bond yields. Yields on euro-denominated credits were consistently below 1% between July 2019 and February 2022, apart from a brief period around the start of the coronavirus pandemic. For global corporate bonds, the (unhedged) yield was below 1.75% between July 2021 and October 2022. When you factor in the average hedging cost of USD investments in euros, which averaged 0.73% over this period, the return was around one percent.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Those days are over. Since the end of summer 2022, a European investor has been able to consistently get a running yield of more than 3% on an investment in corporate bonds. As a result, flows into the corporate bond asset class have increased significantly. We see several reasons why corporate bonds offer advantages over government bonds:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Excess return: Because they&#8217;re riskier than safer government bonds, corporate bonds have a higher yield. This return advantage can be consumed by price losses caused by rising spreads in individual years, but on average, the index has had a realised excess return of 1.15% per year between 2001 and 2023. There have been times in phases of spread rallies when the annual excess return was as high as 17.3%.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<h5 class=\"wp-block-heading\">Figure 1: Excess returns of Global IG Credit over government bonds with the same maturity<\/h5>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2024\/09\/2024-09_IG_DEEN_Abb1.svg\" alt=\"\" class=\"wp-image-205144\" style=\"width:1000px;height:auto\"\/><figcaption class=\"wp-element-caption\">Source: Bloomberg L.P., Quoniam Asset Management GmbH<\/figcaption><\/figure>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<ul class=\"wp-block-list\">\n<li>Diversification: Government bond indices often have only a few issuers with sometimes high weightings, forcing investors into high individual issuer risks when they track benchmarks. By comparison, the Bloomberg Global Aggregate Corporate Index has almost 16,500 bonds from almost 2,000 issuers (as of September 2024). With a solid investment process, it is easy and effective to diversify the unsystematic risks of individual companies.<\/li>\n\n\n\n<li>Risk mitigation: Corporate bonds have an interest rate component and a spread component. Historically, these two components have often moved in opposite directions: rising spreads have often gone hand in hand with falling interest rates, meaning that total returns have often been very stable. Although the years of low interest rates were characterised by a positive correlation between the two parameters, the rise in interest rates to historically more typical levels since 2022 has also shifted the correlation back into the usual negative range.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<h5 class=\"wp-block-heading\">Figure 2: Correlation between credit spreads and interest rates in different interest rate regimes<\/h5>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2024\/09\/2024-09_IG_EN_Abb2.svg\" alt=\"\" class=\"wp-image-205147\"\/><figcaption class=\"wp-element-caption\">Source: Bloomberg L.P., Quoniam Asset Management GmbH<\/figcaption><\/figure>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h5 class=\"wp-block-heading\">Take advantage of new possibilities in bond investing with a systematic approach<\/h5>\n\n\n\n<p class=\"wp-block-paragraph\">While many fund managers use traditional fundamental analysis to construct corporate bond funds, an interesting alternative has emerged over the last two decades in the form of systematic credit strategies. These strategies try to build portfolios that rely on systematic factors like carry, value or momentum. As these factors are, on average, linked to a risk premium or market inefficiency, systematic strategies can generate outperformance.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The following reasons make a case for adopting a systematic approach to credit strategies:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>While systematic approaches have become more common in the market, there still is not a large share of the overall credit allocation invested in them. As a result, it is still comparatively easy to capture the premia associated with systematic credit factors. This results in stable and replicable outperformance with low tracking error and drawdowns.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<h5 class=\"wp-block-heading\">Figure 3: Systematic factor premiums<\/h5>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2024\/09\/2024-09_IG_EN_Abb3.svg\" alt=\"\" class=\"wp-image-205149\" style=\"width:999px;height:auto\"\/><figcaption class=\"wp-element-caption\">Outperformance of a mixed signal of carry, momentum, and value versus the Global IG Credit market. Source: Quoniam Asset Management GmbH<\/figcaption><\/figure>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<ul class=\"wp-block-list\">\n<li>Rigorous risk management: Systematic strategies are characterised by a high level of diversification and risk management. The aim of the strategy is to harvest the risk premia associated with systematic factors such as carry, momentum or value. Downgrades from IG to the high-yield segment can be forecast and proactively avoided using a downgrade model.<\/li>\n\n\n\n<li>Style diversification: Traditional fundamental managers have on average a higher risk than the benchmark. This is reflected in a performance pattern that is highly dependent on market conditions. In phases of falling spreads (negative market spread changes), these strategies tend to outperform significantly. In phases of rising spreads (positive market spread changes), fundamental credit funds often underperform significantly. This dependency on the state of the market is virtually non-existent with systematic strategies.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<h5 class=\"wp-block-heading\">Figure 4: Market dependency of fundamental and Quoniam&#8217;s systematic strategies<\/h5>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2024\/09\/2024-09_IG_EN_Abb4.svg\" alt=\"\" class=\"wp-image-205151\"\/><figcaption class=\"wp-element-caption\">Peer group for Global IG Credit consisting of institutional mutual funds with a minimum volume of 100 million euros. Period 2019 &#8211; 08.2024. Source: Bloomberg L.P., Quoniam Asset Management GmbH<\/figcaption><\/figure>\n\n\n\n<div class=\"wp-block-group is-style-smallBG\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h5 class=\"wp-block-heading\">Why chose a quantitative-systematic strategy for global fixed income?<\/h5>\n\n\n\n<p class=\"wp-block-paragraph\">Given what we are seeing in the current market right now, there are many compelling reasons why quantitative-systematic strategies should be successful:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>End of central bank intervention policies: As inflation rose in 2022, most central banks started to wind down their intervention policies. Bond purchases and their reinvestments, zero or negative interest rates and a generous supply of liquidity to the markets are all things of the past. In this kind of environment, politics plays a smaller role and more fundamental market factors come into play. A factor model can help us identify and quantify these factors very effectively and in a systematic way.<\/li>\n\n\n\n<li>Risk management is becoming more important again: In the past few years, central banks have been quick to step in and help market participants in crises. As a result, price drops were often only short-term, so the best strategy was to hold on to positions. Looking ahead, it&#8217;s becoming more important to avoid risks, because you can&#8217;t assume that central banks will step in to support every market downturn. One of the advantages of systematic strategies is their ability to handle risks effectively.<\/li>\n\n\n\n<li>Risk of rising spreads: The US economy is struggling, while the economic crisis in Europe is getting worse. We&#8217;ve already seen rising spreads in parts of August and September 2024. If this trend continues, traditional fundamental approaches are likely to underperform because they are frequently overweight risk. In such a phase, the value of systematic strategies becomes particularly apparent.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Quoniam Asset Management has been active in the area of global corporate bonds since 2009 and offers institutional investors attractive conditions for investing in global corporate bonds. Union Investment Luxembourg S.A. will shortly be launching a new sub-fund Global Credit on the QFS SICAV fund platform, which will be managed by Quoniam Asset Management GmbH.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><a class=\"btnFull\" href=\"https:\/\/www.quoniam.com\/en\/investment-grade-credit\/\" target=\"_blank\" rel=\"noopener\">Find out more about our investment grade approach<\/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=\"wp-block-heading has-text-align-center\"><br>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-constrained wp-block-group-is-layout-constrained\">\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\/diversifying-credit-portfolios\/\" title=\"Diversifying credit portfolios with factor investing\">\n                                    <div class=\"newsTeaser\">\n                                        <div class=\"image\">\n                                            <img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2022\/03\/DW_creditportfolios-white-paper2-448x220-c-default.png\" 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                                                    March 2022\n                                                <\/div>\n                                            <\/div>\n                                            <div class=\"headline\">Diversifying credit portfolios with factor investing<\/div>\n                                            <div class=\"introText\">\n                                                                                                    <p>How can investors profit from investing in fixed income factor strategies? 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Quoniam\u2019s empirical study demonstrates that investors can diversify their overall credit exposure by adding a multi-factor strategy to their fundamentally managed credit allocation.<\/p>\n\n                                                                                            <\/div>\n                                        <\/div>\n                                    <\/div>\n                                <\/a>\n                                                    <\/div>\n                    <\/div>\n                                    \n                    <div class=\"slide\">\n                    \n                        <div class=\"newsTeaserWrapper cell\">\n                                                            <a href=\"https:\/\/www.quoniam.com\/en\/article\/risk-conscious-high-yield\/\" title=\"Risk-conscious high-yield management fits the current market environment\">\n                                    <div class=\"newsTeaser\">\n                                        <div class=\"image\">\n                                            <img decoding=\"async\" src=\"https:\/\/www.quoniam.com\/wp-content\/uploads\/2024\/08\/2024-07_HY-study-visual_VH-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                                                    September 2024\n                                                <\/div>\n                                            <\/div>\n                                            <div class=\"headline\">Risk-conscious high-yield management fits the current market environment<\/div>\n                                            <div class=\"introText\">\n                                                                                                    <p>In view of the current risk premiums for high-yield bonds and the less dynamic development of the global economy, investors are asking themselves whether high-yield bonds currently represent an attractive investment opportunity. 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More volatility lies ahead.<\/p>\n\n                                                                                            <\/div>\n                                        <\/div>\n                                    <\/div>\n                                <\/a>\n                                                    <\/div>\n                    <\/div>\n                            <\/div>\n        <\/div>\n<!-- \/News Slider --><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Corporate bonds are back Investors have been dealing with a prolonged period of low corporate bond yields. Yields on euro-denominated credits were consistently below 1% between July 2019 and February 2022, apart from a brief period around the start of the coronavirus pandemic. For global corporate bonds, the (unhedged) yield was below 1.75% between July [&hellip;]<\/p>\n","protected":false},"author":20,"featured_media":205133,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"Global corporate bonds systematically managed","_seopress_titles_desc":"There&#039;s been a noticeable increase in demand for corporate bonds following the rise in interest rates in 2022. Dr. Harald Henke takes a look at the benefits of investment grade (IG) credit and of systematic investing approaches.","_seopress_robots_index":"","footnotes":""},"categories":[44,115],"tags":[84],"class_list":["post-205177","post","type-post","status-publish","format-standard","has-post-thumbnail","category-article","category-artikel-en","tag-fixed-income"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/205177","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\/20"}],"replies":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/comments?post=205177"}],"version-history":[{"count":5,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/205177\/revisions"}],"predecessor-version":[{"id":205190,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/205177\/revisions\/205190"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/media\/205133"}],"wp:attachment":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/media?parent=205177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/categories?post=205177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/tags?post=205177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}