Hermes Investment Management has added to its global fixed income product offering with the launch of an Unconstrained Credit fund.
The Ucits fund, seeded by cornerstone investors including Quilter Multi-Asset, has investor commitments of £185m and aims to offer a high-conviction, multi-sector credit solution that is structured to perform throughout market cycles.
The investment process combines top-down allocation across the global liquid-credit spectrum with bottom-up, high-conviction security selection.
This is complemented by an options overlay to manage risks within the prevailing market environment.
Andrew Jackson, head of fixed income, and Fraser Lundie, co-head of credit and lead credit portfolio manager, will manage the fund and look to exploit opportunities throughout the global liquid credit spectrum in investment-grade and high-yield bonds, loans, credit-default swaps, asset-backed securities and other credit derivatives.
Through assessing credit risk appetite across liquid-credit markets, the multi-asset credit investment committee will provide allocation guidance, with bottom-up credit selection, implemented following intensive fundamental credit analysis that includes pricing in environmental, social and governance risks.
The options overlay will hedge high-conviction positions by mitigating the impact of any broad-based material deterioration in credit markets.
Provider view:
Mr Jackson, head of fixed income, said: “We view flexibility and risk management as the most important tools in any fixed income asset manager’s toolkit. It is for that reason that we continue to use security selection and ESG as primary tenets of our approach. We seek to further diversify the underlying universe of global assets, extend the ability to deviate meaningfully from benchmarks, and to fully use the range of credit instruments as risk mitigation tools.”
Fraser Lundie, co-head of credit and lead credit portfolio manager, said: “As investment conditions change, we aim to capture superior relative value throughout credit markets and offer a dynamic credit-allocation solution to investors seeking to outsource their full credit exposure, or enhance more traditional allocations. Unrestricted by security type or geographical silos, our unconstrained approach allows us to maximise total returns by investing across the full credit spectrum.”
Adviser view:
Alan Steel, chairman at Alan Steel Asset Management, said: “We’d prefer to sit out on this type of launch. Seems highly specialist at this point in the cycle. We prefer right now as defenders the approach from the likes of David Jane [from Miton Asset Management], mixing across all asset classes.
“We set up client portfolios depending on issues like their age, need for income, attitude to risk and where we think we are in the economic cycle, split say between equities – attack, mid range strategies – midfield, and caution – defence. David’s multi-asset approach is key for us in defence.
“Early in the bull market we had less defence, more attack, as in small cap growth, Asia, tech, that sort of thing. After nine years, it seems to us wise to be taking far less risk.”
Fees/charges:
0.65 per cent a year of net asset value, accrued daily and payable monthly in arrears at the end of each calendar month. No performance fee.
Verdict:
Hermes’ flexible mandate approach will attract advisers who want to manage their portfolios at a time when it has been said the bond market is in a bubble and prices are too high.
