As we enter a new era of monetary tightening, needed to combat constantly increasing inflation, financial markets are suffering. The fiscal and monetary stimulus programmes introduced in response to the COVID-19 pandemic, shortages, logistical problems and soaring commodity prices exacerbated by the war in Ukraine have all contributed to the current level of inflation: on average 7.5% in Europe and 8.5% in the United States. In addition, there are other factors leading investors to believe that inflation is structural rather than transitory: the need to relocate to better control supply (semi-conductors, energy, etc.), energy transition, the end of fiscal austerity with governments spending more and, lastly, the shift by China from an export-based model to an economy more focused on domestic growth.
Against this backdrop, the rise in interest rates is brutal for a fixed income universe whose duration has gradually increased in recent years.
A bond solution against the tide
Since its inception in 2012, our Anaxis Short Duration fund has sought to provide a fixed income solution that goes against this trend, based on the conviction that a short duration approach with a focus on corporate bonds offers one of the best risk-return combinations.
These are the main arguments in favour of our Anaxis Short Duration fund in the light of all these elements:
– The fund’s duration is 2 years and cannot exceed 3 years, while the average maturity of securities is 2.6 years and, once again, cannot exceed 3 years. This positioning has been validated in particular by recent yield curve shifts. In fact, the yield and credit curves are steepening at the short end, with at the same time a sharp flattening across longer maturities. This makes 3-year yields particularly attractive in relative terms.
– The performances of short-term high yield have been decorrelated from interest rate markets over the last 10 years. Our Anaxis Short Duration fund has generated positive performances during different periods of rising interest rates.
– The fund’s current focus is on the BB credit segment, which sits just below investment grade level, offering exposure to companies with low debt levels and whose default levels are particularly low. The bonds of these issuers are moreover very liquid and the issue size is large (> EUR 500m).
– More generally, the companies in our investment universe are entering this period of rising interest rates with solid fundamentals. The average leverage has returned to an historically low level while interest coverage ratios have reached historic highs.
– We are however aware of the sensitivity of certain sectors to the surge in commodity prices, and our fund’s exposure to the automotive, packaging, chemical and construction sectors is therefore low. On the other hand, the telecoms, healthcare and service sectors are well represented.
Fund characteristics
At 15/04, the Anaxis Short Duration fund had an average yield of 5.32% in dollars. The portfolio was diversified via 178 issuers, including 74.5% of secured bonds. The fund is article 9, which reflects our ambitious ESG policy.
Key Figures Anaxis Short Duration (15/04/2022)
Average yield*: 5.32%
Duration (years): 2.07
Number of issuers: 178
*J Class (USD), gross yield before management fees.
