Aberdeen Standard Investments  

Day goes active to play US credit

Day goes active to play US credit

Standard Life Wealth’s Jason Day has switched back to active funds in a bid to get value out of US investment-grade credit within the firm’s range of multi-asset portfolios.

Mr Day, who works on a number of “conventional” risk-rated model portfolios, as well as several target return offerings for the firm, has boosted his US investment-grade debt exposure in certain portfolios as he believes the market is approaching a time of strength.

In a change to his standard practice, this exposure has been gained via the use of active funds. He explained: “Credit yields are getting lower and lower in Europe. Yield is scarce, and so what we are seeing in that environment is foreign investors focusing back on the US as a source of yield. 

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“Even a second [US interest] rate hike will be gradual. We think that’s supportive for the bond market, while issuance is still very strong.”

Mr Day’s US exposure was previously “purely implemented through the use of derivatives”, but in recent months he has had a rethink.

“We had US investment-grade exposure through our portfolios via derivatives, but did a search for active managers with pedigree and amended the way our exposure is taken,” he said.

This means that, bar a small derivatives position in the Market CDX index, exposure is now taken via the Pimco US Investment Grade Corporate Bond fund, added in September alongside passive exposure from Vanguard.

Meanwhile, Mr Day also initiated a position in the Robeco Boston Partners Global Premium Equities fund in August in an attempt to expand the scope of his global equity exposure.

The move sees the fund sit alongside the Baillie Gifford Global Alpha Growth, Schroder Global Equity and Artemis Global Income funds, in what Mr Day described as a nod to a range of different styles.

“The Robeco fund has a style that combines value, quality and momentum and is a complementary addition to the funds that we already held,” he said.

“We did a lot of work on our underlying [global equity] managers. We were happy but wanted more value in the portfolios. 

“We didn’t want something that was outright deep value, but something fairly pragmatic – to add a bit more ballast.”

However, the global equity exposure within the range has fallen in recent months, with this weighting being “pared back” in favour of positions in the European credit space.

Holdings in high-conviction European equity mandates have also been reduced this year to “reinforce” global high yield and European credit positions.

More recently, Mr Day has added to positions in European corporate bond funds from Schroders, Standard Life Investments and M&G, noting that the first two in particular had enjoyed strong year-to-date performances against their index.

“This asset class has performed well and manager selection has been solid,” he said.