One of the best risk/return ratios
In recent weeks, financial markets have seen a resurgence of interest rate fears, particularly in the US at the long end of the curve, and in Europe to a lesser extent. The rising rates remind us how precarious it can be for investors to hold long-duration bonds. With its concept and strategy, our Anaxis Short Duration fund provides a solution in the current macroeconomic environment.
The Short Duration strategy offers three main advantages, three reasons why it is relevant for consideration in an asset allocation:
1) One of the best risk/return ratios. This segment of the bond market offers an attractive return in relation to risk, in terms of duration. This is particularly true in comparison with the Investment Grade segment and sovereign bonds.
2) Protection. This segment offers protection in the event of a downturn in equity and bond markets, particularly in the event of a credit or interest rate shock.
3) Liquidity. Our Short Duration strategy focuses on the BB rating segment, which is always in demand in the market. Bid/ask spreads are tight, and issues are large (on average over USD 500m).
A more resilient strategy than Investment Grade
Comparing the risk/return ratio in terms of asset class, after a 10-year down cycle the Investment Grade segment has the drawback of having a high duration (over five years) and yields close to zero. This creates strong asymmetry in the profile, with a duration risk.
The High Yield Short Duration segment not only performs better than Investment Grade, but also than the High Yield universe not constrained by duration. The data is particularly spectacular in the US. We therefore readily look outside Europe for diversification in our fund. However, Europe remains the majority region in the portfolio, by choice and due to prospectus constraints.
As of 21 May 2021, our Anaxis Short Duration portfolio offers investors an average yield in euros of 2.42%. The duration is low, at 1.69 years, and the portfolio is well-diversified, with around 168 different issuers.
