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AAA-rated Vogel: getting the macro/micro mix right on credit

AAA-rated Vogel: getting the macro/micro mix right on credit

For Citywire AAA-rated Patrick Vogel capturing the full complexity of the credit world demands a systematic approach.

The head of European Credit at Schroders and manager of several funds – including Schroder ISF Global Multi Credit and Schroder ISF Global Credit Income – ensures his team looks at the bigger picture before deciding which securities to buy.

‘We want to find out what is likely to drive success or failure in these markets. Each month our head of credit strategy presents everything to the credit allocation committee. Strategists, high yield fund managers and investment grade fund managers then debate how we should look at the global market,’ he says.

The $395 million Schroder ISF Global Multi Credit fund currently has 497 holdings and Vogel’s team draws on quant support in the selection process.

‘We split the markets up into three main areas: the US, Europe and emerging markets. We also divide the global credit market into roughly 100 different submarkets. This more granular view of country allocation, ratings, duration allocation and subsector allocation gives us a good understanding of where the opportunities lie,’ Vogel says.

‘At the same time I would describe our process as highly bottom-up. A lot of the success we have had over the last five years has been driven by our understanding of single companies. Single-name selection is very important even in these global funds.’

Extra care on financials

In terms of sectors, industrials makes up the largest position in the Global Credit Income fund at 38.8%, followed by financials, which makes up 36.3%. Vogel says he takes a cautious approach to this sector, so most of the financials he holds are senior bonds.

Unlike many other managers, he holds no contingent convertible bonds and only a few subordinated financials.

‘Financials are heavily geared to the global economy and carry a lot of systematic risk. In my experience financials never do well in a market sell-off. What we are seeing at the moment is that markets in general are relatively expensive. To find a bargain in global credit markets is very tricky indeed,’ Vogel says.

‘We own the most senior tranche of these banks, most of them are the well-known European and US institutions. But because of the seniority, we assume they are conservative investments and the current state of the market should not give us too much downside where the credit market is weakening.’

Vogel’s wary approach is tailored to an appropriate investor base and the Schroder ISF Global Credit Income fund is targeted at particularly cautious clients.

This interview originally appeared in the 2017 Euro Stars which was published in November.

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