Winners rationale

A name synonymous with Greater China credit investing, Value Partners has established an enviable track record on the back of an investment process that encourages open communication and teamwork, and emphasises risk management. Value Partners holds that a portfolio built around a diversified set of actively managed positions has the potential to generate the most attractive risk-adjusted return over a full market cycle, and significant bottom-up resources that enable the manager to identify and exploit market inefficiencies in a disciplined, risk-controlled manner.

Case in point: Value Partners Greater China High Yield Bond Fund (UCITS) was incepted in December 2019 at the back of nearly-a-decade of track record in this universe. The UCITS-compliant fund is for clients who prefer a better liquidity profile, a higher average credit rating, with a focus on plain vanilla bonds.

Behind the strategy is a team that is as experienced as it is stable, with the core members having worked together since the inception of the strategy almost a decade ago. Value Partners has a long history of investing in Greater China credits. Its flagship bond fund, which is a Cayman vehicle, was successfully launched in March 2012 and has been managed by the same investment team led by Gordon Ip, chief investment officer of Fixed Income. It was actually the first China high-yield bond fund available to investors in the industry.

As an active bottom-up manager, Value Partners believes they can best add value to investors by focusing on the single B-rated and below universe, where there are less-crowded trades and issuers are arguably less followed, less researched and ultimately, less well-known.

The firm is an activist investor in Asian credit that seeks to create extra value for clients by partnering with bond issuers and actively engaging in their businesses. As such, Value Partners maintains a strong position in both the public and private markets and is deeply embedded in both onshore and offshore China, ensuring its long-term sustainability.

Within the Asian credit universe, Value Partners is positive on the outlook for the mainland Chinese property sector. Because of its domestic nature, China property is much less sensitive to the US/China trade conflict. The firm expects the physical market to remain stable in terms of national sales value but it may see divergence among cities clusters. After a strong run in 2020, the firm expects policy to turn to a more tightening bias. With the introduction of “Three Red Lines” policy to control leverage and the continuous emphasis on the theme that “House is for living, not speculating”, Value Partners expects the sector to enter into an era of controlled growth in which we see lower growth rate, lower leverage, but also lower risks.

Moreover, over half of Value Partners’ global sales and service team for intermediaries is dedicated to the private banking segment. Here in Asia, the firm’s private banking distribution efforts are led by some of the most experienced individuals in the industry and reinforced by a commitment to a best-in-class pre- and post-sales service, erudite marketing, and thought leadership initiatives that emphasise education.

In a competitive and challenging space, Value Partners distinguished itself as the provider of choice of Greater China credit opportunities, justifiably winning the Asian Private Banker award of Best Fund Provider – High Yield Bond for 2021.

Winners rationale

For the third consecutive year, Fidelity International demonstrated its credentials as the ‘go-to’ manager of high yield bond funds in Asia, albeit under very different conditions.

A true pioneer in the space — having invested in the Asian high yield markets since 2007 — Fidelity’s offering in 2019 included two of the most compelling strategies in the asset class. Both the Fidelity Asia High Yield and China High Yield funds aim to deliver capital appreciation and a high level of income by investing primarily in debt securities of sub-investment grade companies across Asia and China respectively. Both stood out among peers for their performance (5.0% p.a. and 6.3% p.a. for the A-ACC-USD share classes since launch to end November 2019 respectively, net of fees) and defensiveness, with less than 5% annualised volatility over the last three years (as of end November 2019).

Fidelity’s investment philosophy is that high yield markets function in a semi-efficient manner and possess a number of unique characteristics. Accordingly, the firm placed a great emphasis on resourcing and configuring so as to exploit those inefficiencies. Its credit research team had an average industry experience of 13 years and a commensurate output of due diligence and ideas that produced a track record of steady risk-adjusted returns. The investment team behind the Asian and China high yield franchise alone ranked among the industry’s most experienced and well-resourced.

And this showed in the strong performance in 2019 of both of Fidelity’s aforementioned high yield strategies, which was largely attributable to the investment team’s decision to progressively add risk during the second half of 2018 as spreads widened. Furthermore, AUM in its Asia High Yield Fund had reached US$5 billion as at 30 November 2019 (an increase of around US$1.1 billion over the preceding 12 months) and US$923 million in its China High Yield strategy (up approximately US$844 million over the same 12 month period).

Fidelity International also continued to invest in its private banking-focused sales and servicing team in the region, making key strategic hires over the past 18 months and ensuring its internal resources and processes were sufficiently streamlined to ensure that its clients’ needs were met with agility and innovation.

The firm is clear about the importance of Asia’s private banking industry in terms of the manager’s ability to achieve its ambitions. Fidelity aims to double its assets in the channel in the next three years and — armed with one of the largest distribution and investment specialist teams in the region — has prioritised engaging its partners on a business-to-business level and providing maximum access to its experts to facilitate this growth.

Fidelity International is Asian Private Banker’s Best Fund Provider – High Yield Bond.

Winners rationale

A tumultuous 2018 exerted significant downward pressure on high yield bonds, precipitating a noticeable outflow from the asset class as a whole. However, Fidelity International proved itself an exception by recording healthy net inflows from the region’s private banks, in large part due to its strong bottom-up credit research capabilities and thorough risk management processes.

Compared to 2017, a year that disappointed investors due to the relative lack of yield in the market, 2018 was punctuated by a rates increase and widening spreads. Against this backdrop, the firm witnessed renewed demand from its yield-hungry Asian investors for strategies providing attractive income yield premium and stellar returns.

In addition to its long track record in the HY segment globally — the firm has invested in Europe and US HY strategies since 2000 and 2001, respectively — Fidelity International became a pioneer in the Asian HY space in 2007 and now boasts the largest AUM in the market.

The firm’s HY product suite offers investors both breadth and depth and comprises global and regional HY bonds as well as country-specific bond funds. Currently, the firm manages US$85 billion in fixed income assets globally.

“We believe that one of the key drivers and basis of performance alpha in the high yield bond space is credit selection,” said Bryan Collins, head of Asian fixed income and portfolio manager at Fidelity International.

“To this end, we prioritise strong bottom-up credit research and analysis to identify names with strong potential for yield compression and/or reliable carry, while mitigating the risk stemming from credit events.”

Fidelity International’s credit research team comprises 28 professionals based in London, Hong Kong, and China, each having spent an average of 13 years in the industry and five years at Fidelity International.

Given its strong track record and exemplary performance in the HY space in 2018, as well as its commitment to its private banking clients, Fidelity International was once again voted Asian Private Banker’s Best Fund Provider – High Yield Bond.