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Credit kings: four managers making waves in corporates

Citywire Investment Research finds the bond managers boasting ratings-worthy returns.

Market Overview

Corporate bonds as an asset class has 210 managers with a rating this month. Out of this group, 14 hold our highest AAA rating, 29 boast a AA rating, 58 are A rated and 109 now operate with a + rating.

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Highest New Entrant

Fund manager: Jani Kurppa, Evli

Citywire rating: + rated

Overview

Our highest new entrant within corporate bonds this month is Jani Kurppa of Evli, who comes into our analysis with a + rating. Kurppa manages the Evli European Investment Grade B fund, which has a long-term European corporate bonds with high credit ratings (min BBB-) remit.

Kurppa’s largest bet is on Kemira, a Finnish chemical industry company, with 2.56% of the portfolio allocated there. Despite having a European remit, Kurppa continues to overweight Nordic issuers and selected banks. Indeed, by sector the banks dominate the portfolio with 20.89% exposure, compared with 16.02% in real estate and 12.84% in utilities.

Looking at its composition from a geographical perspective, the fund is bullish on its home markets of Finland and Sweden, as these comprise 24.97% and 15.71% of the portfolio, respectively. The fund has a relatively short duration (-0.7% vs its benchmark) but relatively wider spreads and yield 1.5%.

At present, 51.65% of the portfolio is invested in bonds with a maturity between 5-10 years, meaning that Kurppa is protected against inflationary risks. His performance over a five-year period is impressive, outperforming the average manager by generating 24.2% compared to their 19.8%.

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Comeback Star

Fund manager: Emmanuel Petit, Rothschild & Cie Gestion

Citywire rating: + rated

Overview

The manager returning to the fold with force this month is Emmanuel Petit of Rothschild & Cie Gestion, who is our comeback star for this month. Petit regained his Citywire + rating for the first time since June 2016 for the performance on the R Euro Credit C, which he has been managing since May 2006.

The fund invests solely in private, investment grade corporate bonds primarily in Europe. It is currently slightly overweight financial services bonds with an allocation of 46.5% compared to 40% in its benchmark, the Markit iBoxx Euro Corporates index. It is slightly underweight telecoms, with 14.6% allocated there compared to 12.3% in the benchmark. Petit is largely overweight oil & gas with 9.3% invested in the sector compared to 2.4% in its benchmark.

The fund’s largest holding is CNH industrial, a Dutch capital goods company, comprising 1.1% of the portfolio, while Petit’s largest bet by country is on France, comprising 13.9% of the portfolio and investing in firms such as Altarea (1.1%) – a French real estate construction company – and BPCE (1%), a French bank.

In his last monthly commentary, Petit said the fund’s management philosophy has not changed despite market conditions changing, namely he kept his approach of modest sensitivity and highly selective securities-picking. He recently reduced the fund’s credit beta to accompany the decline in risk premiums.

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One to Watch

Fund manager: Suvir Mukhi, Income Partners AM

Citywire rating: AAA-rated

Overview

The manager to watch this month is Suvir Mukhi of Income Partners Asset Management, who has continued his streak of AAA ratings bringing his total to nine. He has run the IP All Seasons Bond A USD fund since January 2014 and achieved impressive performance compared to his average peer, having returned 15.6% compared to a 5.6% return over a three-year period.

The fund is heavily invested in China, with 49.8% of the portfolio invested there, while 11.1% is invested in Indonesia and 6.7% exposed to India. These conviction calls sit alongside allocations to Malaysia, Australia and South Korea, indicating that Mukhi is confident in the region and its growth prospects. His biggest holding Philippine banking company BDO Unibank, which makes up 3% of the portfolio.

Mukhi is bullish on banking and financials with 20.6% of the portfolio allocated there and his conviction was rewarded this month, as Indonesian Power Credit was among the top contributors. To hedge against further volatility from Korea, Mukhi has paired a Korea CDS position against a sell China CDS trade, he noted in his fund update that Asian investment grade credits drifted slightly wider amid re-emergence of North Korean tensions.

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Rising Star

Fund manager: Guillaume Truttmann & Guillame Lacroix, Quilvest

Citywire rating: A-rated

Overview

Quilvest’s Guillaume Truttmann is our Rising Star this month, as he gains his first A rating after only being eligible for a rating since July. He gains this rating due partially to the performance of the Quilvest Euro Yield I fund, which sits in the Bonds – Euro Corporates sector. He also manages Harmonie Equilibre, Quilvest Credit Sub I, Quilvest Obligations Opportunites D, Quilvest Convertibles I & Quilvest VM Obligations Court Terme C funds. Guillaume Lacroix works alongside Truttmann on several of these funds.

The Quilvest Euro Yield I fund’s largest bet is in Vonovia SE, Germany’s largest housing association, with 1.88% of the portfolio allocated here. Over a three-year period, the fund returned 12.1% compared to a sector average of 6.6%. Most of the fund is exposed to fixed income with a maturity of between 5-10 years with 51.06% allocated to these time periods.

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