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EdRAM crossover bonds strategy takes HY close to upper limit

EdRAM crossover bonds strategy takes HY close to upper limit

Fund manager Mark Kowalski from Edmond de Rothschild Asset Management has increased his exposure to high yield bonds, taking his postion close to its maximum capacity.

The current allocation to the asset class in his Edmond de Rothschild Fund – GI Crossover Bonds fund is 39% against the limit of 40%.

Kowalski is betting on the ECB's bond purchasing program and achieves his high yield exposure using a crossover strategy.

He added that there was more issuance of BBB and BB rated bonds in Europe in the beginning of the year.

‘We still have a conviction in corporate bonds and prefer credit risk over duration risk at the moment. The technical as well as fundamental data remains stable in the high yield sector,’ Kowalski said.

Crossover strategy for lower volatility

‘The core of our portfolio consists of investment grade BBB and high yield BB corporate bonds,’ said Kowalski.

The crossover strategy reduces volatility of the fund as investment grade and high yield often move in opposite directions over the same timeframe. Kowalski finds both asset classes very attractive at the moment. 

‘The main risk in the European high yield bond space would be an abrupt and unexpected change of the ECB monetary policy. For that to happen the inflation rate of the eurozone should be substantially higher than market expectations.’

According to the factsheet from April 2017 the top three positions in the fund are General Motors (1.9%), Credit Suisse Group (1.8%) and UBS Group (1.8%).

The global crossover bond fund is managed by Kowalski together with Raphael Chemla. Both fund managers rely on the analysis of the six-strong team.

Edmond de Rothschild Fund – GI Crossover Bonds has returned 2.23% in Swiss franc terms to the end of May over the last year. Its Citywire-assigned benchmark, Citi WGBI TR EUR, lost 3.13% over the same timeframe.  

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