Winnersrationale

In addition to grappling with ultra-low yields across much of the credit universe, inflation has been quickly rising up the list of risks which private bank clients face heading into 2022. Invesco has come up with a solution to both dilemmas.

The asset manager’s US Senior Loan Fund boasts equity-like returns while providing a hedge against risks from increases in interest rates and duration in more traditional bond products.

In addition to its low level of correlation with other asset classes — which helps to mitigate overall portfolio volatility — the floating rate nature of the Invesco fund means investors stand to benefit from likely interest rate rises in the coming months. While senior loans lie below investment grade debt in the capital structure, they are secured by company assets and prioritised for repayment in the event of a default.

The class H-shares of the fund had returned 7.02% before fees in August 2021 YTD, versus 3.98% for its benchmark, the Credit Suisse Leveraged Loan index, translating to an outperformance of 304 bps. On a three- and five-year basis, the fund beat its benchmark with annualised returns of 4.97% and 5.3%, respectively, with much of that derived from income.

Much of 2021’s alpha was generated by credit selection, with the fund benefiting from a rebound in markets from the disruptions caused by COVID-19 the prior year. Some of the fund’s high-conviction positions included cinema operator Cineworld, home alarm company Monitronics and credit card issuer NewDay.

The fund took advantage of climbing oil prices via energy groups including Fieldwood Energy, Aquadrill and Crestwood, whose credits were trading at substantial discounts coming into 2021.

Total assets under management for the fund reached US$5.72 billion as of August 2021, while it benefited from inflows from private banking platforms across Asia-Pacific during the period under consideration.

Invesco is Asian Private Banker’s Best Fund Provider – US Bond for 2022.

Winners rationale

Yields remained lower for longer in 2020, as markets continued to see a shift into more monetary and fiscal easing. Fidelity International distinguished itself from its peer group in this increasingly challenging environment, where generating an attractive return from US bonds had become harder than ever before.Focusing primarily on capital appreciation, the firm’s flagship US bond strategy — the Fidelity Funds US Dollar Bond Fund — exhibited an extraordinary level of resilience, especially during market volatility. The strategy historically has a high negative correlation with the equity markets. This was evident in late 2018 and more recently during the height of the COVID-19 selloff in 1Q20.

The numbers speak for themselves. In 4Q18, the fund’s A-USD share class advanced 1.8% in total return terms, while the S&P 500 returned -13.5% over the same period. In 1Q20, the fund’s A-USD share class returned 4.6%, while the S&P 500 returned -19.6% over the same period.

Although the strategy has a conservative profile, it does take periodic risk-on positions when markets present opportunities. A good example of that was in 2020, when the portfolio took advantage of some very attractive valuations on offer in 2Q20 (as a result of the wider market desolation) to selectively add some high-quality corporate credits that were being indiscriminately sold off.

Fidelity’s impressive investment results couldn’t have been achieved without its rigorous credit research and analysis team which underpins the strategy and the firm’s overall investment process and culture. Fidelity’s approach to company research is unique in that there is close collaboration between the fixed income credit research and the equity analyst teams. This enables the firm to perform more in-depth analysis of companies and reach a more holistic view.

Fidelity’s commitment to delivering superior service and investment solutions that meet the demands of the Asian private bank sector remained at the heart of its business strategy in 2020. During the pandemic, the firm quickly adapted to new technologies and adopted different manners of conducting business. As a result, net sales in the private banking industry in Asia achieved a record year in 2020.

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

Winners rationale

In the face of multiple interest rate hikes and testy US-China trade relations in 2018, the US$41 trillion US bond market displayed extraordinary resilience and retained its position as the largest market of its kind despite failing to deliver returns comparable to the previous year.

Backed by proprietary research and a seasoned team with a formidable track record, PIMCO’s multi-sector approach to diversifying risk exposures between investment grade and high yield bonds distinguished the asset manager from its peers during the year under consideration.

Further, PIMCO has demonstrated unrivalled breadth and versatility in catering to Asian clients’ rising demand for flexible, unconstrained strategies that help hedge against growing inflation risks without compromising returns.

Ranking among the asset manager’s standout products, the Mortgage Opportunities strategy
enables investors to gain greater exposure to credit-sensitive, non-agency mortgages, versus comparable products on the market. Further, the fund’s unconstrained approach to gaining exposure to the mortgage market enables it to generate consistent and absolute returns across full market cycles.

Meanwhile, PIMCO’s Global Fixed Income strategy, which places heavy emphasis on the US market, is also popular amongst Asia’s private banking investors who seek exposure to US bonds. As of end-November 2018, the fund outperformed the Bloomberg Barclays US Aggregate Index by 27 bps.

Given PIMCO’s ability to deliver risk-adjusted returns in the midst of protracted market volatility and macroeconomic uncertainty, Asia’s private banking and wealth management gatekeepers named it Asian Private Banker’s Best Fund Provider – US Bond for 2019.