// THEMA WHERE TO FIND YIELD IN (ALTERNATIVE) FIXED INCOME?
THE DEVIL IS IN THE CREDIT DETAILS ‘European credit markets still remain attractive, offering long-term value while taking into account default risk and potential losses.’ Marc Rovers, Head of Euro Credit at Legal & General Investment Management, answers a number of questions related to European credit markets. WHAT HAVE BEEN THE MAIN PERFORMANCE DRIVERS THIS YEAR?
Being defensively overweight in utilities has helped this year as the strong market conditions in January, which weakened through February, were followed by the sell-off in March as the pandemic hit
Looking further back, 2018 started out positively, but as the year progressed we became increasingly concerned about valuations. The opposite was true of 2019, with the year starting weak and
Photo: Archive LGIM
‘Identifying a single performance driver is difficult since our portfolio has changed many times over the past couple of years, mainly driven by economic and monetary conditions. The year 2020 has obviously been a real roller-coaster for the credit markets with the COVID-19 pandemic. We’ve navigated the storm through employing a dynamic combination of top-down and bottom-up research.
Europe. Since the second quarter, we have become more positive on the back of low valuations and historic levels of monetary and fiscal support. Furthermore, companies have been issuing large amounts of debt to ensure sufficient liquidity and their survival. We used this opportunity to add risk, including companies that may have been impacted by the pandemic but which we believe will come out the other side, at the same time hopefully avoiding names that may not survive the crisis.
With all the turmoil, we believe that a focus on quality is imperative.
then turning bullish. As a result we increased beta and ran long on hybrids, which contributed to our performance, but not everything worked out and being overweight in utilities detracted from returns last year.’
WHICH POSITIONS HAVE PROVED BENEFICIAL? ‘Higher conviction investment ideas in certain sectors, or names, often work well. For example, we’ve successfully navigated the automotive sector on the back of good analyst coverage, trying to identify the winners and losers and adding those that we believe will remain investment grade. Within financials, some of our long term holdings are select Italian banks which we believe have stronger fundamentals as compared to their Italian peers and banks in other markets across Europe. With all the turmoil, we believe that a focus on quality is imperative.’ Marc Rovers
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FINANCIAL INVESTIGATOR
NUMMER 8 / 2020
