Global Corporate Bonds · 2020. 9. 17. · From rising stars to fallen angels but... Fallen angels...

For institutional investors only / not for public viewing or distribution

Fixed Income Boutique

September 2020

How to benefit from

the current market

environment

Global Corporate Bonds

Christian Hantel

Portfolio Manager, Vontobel Fund – Global Corporate Bond Mid Yield

2


Introduction

Global corporate bonds – enter a $16 trillion market….

Developed Markets Emerging Markets Other Markets

Source JPM, BofA Merrill Lynch as of August 2020; Indices used are from the BofA Index (Corporate) and JP Morgan (Emerging Markets) family.

IG: 8.2 trn / 8617 bonds

HY: 2.5 trn / 3613 bonds

United States / USD:



Europe / EUR:



UK / GBP



(Hard Currency)

EM/ USD

3


What happened?

Credit spreads gapped out to extreme levels

0

50

100

150

200

250

300

350

400

12

/20

19

1/2

02

0

2/2

02

0

3/2

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4/2

02

0

5/2

02

0

6/2

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0

7/2

02

0

8/2

02

0

Sp

rea

d in

Bp

s

ICE BofAML Global Corporate Index

Spread-Niveau am Anfang vom 2020

Deterioration / Panic

(February–March)

Recovery

(April to May)

Normalization

(since June)

Source: Vontobel Asset Management, Bloomberg, as of 04.09.2020.

4


Credit cycle clock

Where are we in the credit cycle?

Source: Vontobel Asset Management

Deterioration Recovery

Expansion

– Deleveraging

– Margins/profits increase

– FFO grows

– Yields stabilize

– Spreads tighten

– Re-leveraging

– Aggressive M&A

– Debt grows faster than profits

– Yields rise

– Spreads initially tighten, then widen

– High leverage

– Margins under pressure

– Profits decline and asset prices fall

– Yields rise then decline

– Spreads widen

US

US

EU

EU

5


From rising stars to fallen angels but...

Fallen angels (rating downgrades from BBB to BB)

USA Europe

Source: Goldman Sachs, as of 13.08.2020.

Rating downgrades include

KraftHeinz, Ford, Macy’s, etc.

Rating downgrades include Marks

& Spencer, Valeo, Wirecard, etc.

6


…IG rating downgrades have largely dried up

Investment Grade downgrades, weekly downgrade volume US ($bn)

Source: Credit Suisse, as of 23.07.2020.

0

-50

-100

-150

-200

-250

-300

4.1

.2020

18.1

.2020

1.2

.2020

15.2

.2020

29.2

.2020

14.3

.2020

28.3

.2020

11.4

.2020

25.4

.2020

9.5

.2020

23.5

.2020

6.6

.2020

20.6

.2020

4.7

.2020

18.7

.2020

7


Corporate cash at all-time highWeekly revolver & new loan volume

Companies acted prudently, building liquidity buffers…

Change YoY in Nonfinancial Cash (lhs)

Net Cash Positions (rhs)

$0.6 Tr

$0.8 Tr

$1.0 Tr

$1.2 Tr

$1.4 Tr

$1.6 Tr

$1.8 Tr

$2.0 Tr

$2.2 Tr

$2.4 Tr

-$400 bn

-$300 bn

-$200 bn

-$100 bn

$0 bn

$100 bn

$200 bn

$300 bn

$400 bn

$500 bn

$600 bn

1Q

10

1Q

11

1Q

12

1Q

13

1Q

14

1Q

15

1Q

16

1Q

17

1Q

18

1Q

19

1Q

20

Constituents are current S&P 500 nonfinancial companies. Source: Wells Fargo Securities, Bloomberg L.P., Dealogic, as of 21.08.2020.

Drawdowns New Loans

9.3

.20

20

16

.3.2

02

0

23

.3.2

02

0

30

.3.2

02

0

6.4

.20

20

13

.4.2

02

0

20

.4.2

02

0

27

.4.2

02

0

4.5

.20

20

11

.5.2

02

0

18

.5.2

02

0

25

.5.2

02

0

1.6

.20

20

8.6

.20

20

15

.6.2

02

0

22

.6.2

02

0

30

.6.2

02

0

Vo

lum

e (

$ B

illi

on

s)

100

90

80

70

60

50

40

30

20

10

0

8


Top 10 US issuers in H1 (in bn)Issuers have pushed out maturities in the US

…and pushing out bond maturities

-116

226246

574

-200

-100

0

100

200

300

400

500

600

0-4 years 4-7 years 7-10 years 10+ years

YoY IG Maturity Bucket Change ($bn MV)COMPANY

Total Raised

$ €

Boeing 25’000

T-Mobile 24’250

Oracle 20’000

ExonMobil 18’000 4’500

Walt Disney 17’000

AT&T 14’250 5’000

Pfizer 12’700

BROADCOM 12’500

Coca-Cola 11’500 820

BP 9’500 8’000

Source: Credit Suisse, Wells Fargo, as of July 2020.

9


Corporate bond gross issuance globally

Very high issuance levels YTD, in particular during March/April 2020

EuropeUSA

$1

44

6

0

200

400

600

800

1,000

1,200

1,400

1,600

0

200

400

600

800

1,000

1,200

1,400

1,600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

$bn$bn

Rest of Year Year to date

€4

71

0

100

200

300

400

500

600

700

800

0

100

200

300

400

500

600

700

800

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

€bn€bn

Rest of Year Year to date

Source: Goldman Sachs, as of 13.8.2020.

10


Corporate bond gross issuance – US example

Record year expected but activities should decline in H2

Monthly issuance (USD bn) Yearly issuance

Source: J.P. Morgan, Dealogic, as of 02.09.2020.

129

94

114

88

137

86 90 91

131

91 93

22

130

89

262

284

244

163

66

139

0

50

100

150

200

250

300

Ja

nu

ary

Fe

bru

ary

Ma

rch

Ap

ril

Ma

y

Jun

e

July

Au

gust

Se

pte

mb

er

Octo

ber

Novem

ber

Decem

ber

4Y Avg Gross Issuance (2016-2019) 2020 Gross Issuance

11


Corporate bond yields versus average coupons

Source: BAML Research, Global Corporate Investment Grade Bond Index, as of 21.08.2020.

Bond tenders as a theme for Q4?

2% yields versus 4% coupons (US IG)

IG corporate yield (%) IG market weighted average coupon (%)

1

2

3

4

5

6

7

8

9

10

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

12


Market segmentation created new dislocations

By detecting market inefficiencies in a liquid market…we optimize investments without increasing the portfolio risk

Past performance is not a reliable indicator of current or future performance.*Yields after hedging into USD; both bonds with similar duration. Illustrative example. Source: Bloomberg, Vontobel Asset Management, as of 23.08.2020.

-4

-2

0

2

4

6

8

10

12

/20

15

6/2

01

6

12

/20

16

6/2

01

7

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/20

17

6/2

01

8

12

/20

18

6/2

01

9

12

/20

19

6/2

02

0

BAT 2% 2045 in EUR versus BAT 5.85% 2045 in USD

DIFF (EUR - USD) BAT EUR hedged BAT USD Bond

Yield*

USD Bond was more attractiveUSD Bond

is now more

attractive

EUR Bond was more attractive

13


Amount of negative-yielding bonds globally

Source: Bloomberg, Vontobel Asset Management, as of 04.09.2020.

0

2

4

6

8

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12

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10

/01

/201

7

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/07

/201

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/01

/201

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/07

/201

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/201

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10

/07

/201

9

10

/01

/202

0

10

/07

/202

0

US

D t

rn

14


Global Credit: the new low-risk source of yield

Recent yield assumptions act as tailwinds for total returns

Forecasts are not a reliable indicator of future performance.Longer-Term Return Assumptions. *Hedged in EUR. Source: Vontobel Asset Management, as of 03.06.2020.

~EUR

26 trillion ~EUR

11 trillion

15


Vontobel Fund – Global Corporate Bond Mid Yield (G USD share class)

Fund characteristics

Fund Reference Index

01.09.2019-31.08.2020 6.59 5.63

01.09.2018-31.08.2019 12.58 12.00

01.09.2017-31.08.2018 0.68 0.20

01.09.2016-31.08.2017 3.88 2.14

Indexed net return

Net return (in %)Key figures

– Experienced portfolio manager with a proven track

record in managing global credit portfolios and

in-depth knowledge of credit analysis over 18 years

– Portfolio manager supported by a strong team of

8 professionals concentrating on global credit

– Fund offers global diversification in the most liquid

credit markets and also relative-value opportunities

among issuers

– Focus on an expanded and flexible Mid Yield

investment universe to maximize Investment

Grade returns

Christian Hantel

Portfolio Manager

Mondher Bettaieb Loriot

Head of Corporate Bonds

Deputy Portfolio Manager

90

100

110

120

130

140

10/2

015

1/2

016

4/2

016

7/2

016

10/2

016

1/2

017

4/2

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7/2

017

10/2

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1/2

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4/2

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7/2

018

10/2

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1/2

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4/2

019

7/2

019

10/2

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1/2

020

4/2

020

7/2

020


2.2

5.8

14.0

6.6

6.5

6.5

1.9

5.3

12.5

5.6 5.8

5.8

0

4

8

12

16

20

QTD YTD 2019 1 year 3 yearsp.a.

Sinceinception

p.a.


Portfolio Reference Index

Modified duration (years) 7.42 7.21

Average Coupon 3.56 3.39

Number of positions 254 15569

Yield to maturity (LC, %) 2.37 1.69

Average Rating BBB A-

Active Share

(Country, Issuer, ISIN)16%/74%/98%

Past performance is not a reliable indicator of current or future performance. Performance data does not take into account any commissions and costs charged when shares of the fund are issued and redeemed, if applicable. The return of the fund may go

down as well as up due to changes in rates of exchange between currencies. Source: Vontobel Asset Management, Morningstar. Morningstar Rating as of 8.2020. ©2020

Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is

not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Morningstar RatingTM

FundVontobel Fund – Global Corporate Bond Mid Yield

(LU1309987045)

Reference

Index

Currently:

BofA Merrill Lynch Global Corporate Index Hedged

Since inception until 29.9.2016:

BofA Merrill Lynch Index, 50% US Large Cap

Corporate, 50% Pan Europe Large Cap Corporate,

customized Single A/BBBs

Currency USD

Inception Date 29.10.2015

Time Period 29.10.2015–31.8.2020

Rolling 12-month net returns (in %)

16


How to benefit from the current market environment

Source: Vontobel Asset Management.

What’s in for the investor?

Global credit remains one of the few remaining ways to generate returns in this low yield environment.

1Extreme spread levels

have normalized: benefit

from carry and some

more spread tightening.

4New issues are

plenty and remain a

source to generate

outperformance.

2Focus on companies

that can weather

the storm: liquidity

assessment key

among others.

5Optimize your portfolio

by exploiting market

inefficiencies without

increasing portfolio risk.

3Avoid and/or revisit

Fallen Angels as

prices often overshoot.

6 Benefit from upcoming bond tenders.


17

Appendix

18


Credit spreads have tightened from the extreme

levels but are still attractive.

Global yields to stay lower for longer now, which

makes it hard to ignore credit as an asset class.

Macro indicators on negative trajectory, but swoosh

recovery likely.

Massive fiscal packages globally to mitigate the

COVID-19 impact, Europe in particular.

Central banks taking unprecedented actions, such

as the Fed corporate bond buying program.

Why we remain constructive on global credit

Macroeconomics Neutral to cautions

Valuation Positive

Technical Factors Very Positive

Mostly solid overall credit metrics, prudent liquidity

management, bond market open for refinancing's.

Q2 reporting season weak but not as bad as feared.

Rating downgrade trend has dried up most recently.

Significant inflows into global corporate bond funds

remain supportive.

New issue volumes slow down and new issue

premium getting smaller.

High demand from (overseas) investors results in

strongly oversubscribed order books for new issues.

Source: Vontobel Asset Management. Note: Please see our current market outlook for details. Our scorecard evaluates the four main driving factors for global credit: Macroeconomics (economic trend and

monetary policy), Microeconomics (corporate fundamentals), Technical factors (flows, new issues, etc) and Valuations. Our market outlook follows this structure.

Microeconomics Neutral to cautious

19


Curriculum Vitae

Christian Hantel joined Vontobel Asset Management in October 2015 as Senior Portfolio Manager. He is responsible

for the Global Corporate Bond Strategy and manages corresponding funds.

Prior to joining Vontobel, from 2012 to 2015, he was Senior Portfolio Manager at Swisscanto Asset Management AG.

In this role, he managed Swisscanto corporate bond funds as well as multi-currency institutional mandates. He was also

lead analyst for various investment grade and high-yield sectors and corporates, including emerging market corporates.

From 2005, Christian worked at BNY Mellon Asset Management in Düsseldorf, heading the credit investment grade team

focusing on investment grade and high yield issuers, including the management of credit funds. Prior to that, he worked

for several years at PricewaterhouseCoopers in Corporate Finance/M&A.

Christian Hantel earned a Master’s in Business Administration from the University of Cologne and a Master‘s in

International Management from CEMS-HEC Paris. In 2011, he obtained his diploma as a Certified International

Investment Analyst (CIIA).

Christian Hantel

Senior Portfolio Manager

Executive Director

20


Curriculum Vitae

Hubert de Froberville

UK Wholesale and Intermediaries

Director

Hubert joined Vontobel Asset Management in June 2015. He leads the sales and marketing to wholesale and intermediary

clients in the UK, as well as the development of platform relationships.

Prior to joining Vontobel, from 2008 to 2015, he worked at Lazard Asset Management, responsible for European Alternative

Investment sales and marketing, and at UBS Investment Bank from 2007 to 2008. He started his career in 2001 as Trader at

Schneider Trading Associates.

Hubert de Froberville holds a Bachelor of Arts in Philosophy and Economics (Hons) from University College, London, and

completed the Investment Management Programme at the London Business School.

21


Investment risks of the Vontobel Fund – Global Corporate Bond Mid Yield

The listed risks concern the current investment strategy of the fund and not necessarily the current Portfolio.

Subject to change, without notice, only the current prospectus or comparable document of the fund is legally binding.

– The credit quality of the securities that the sub-fund

invests in can deteriorate. This means there is a risk that

the issuer of the securities cannot meet its obligations.

The value of this investment may fall if an issuer’s credit

rating is downgraded.

– Using derivatives results in corresponding counterparty

risks.

– The use of derivatives generally creates leverage. The

sub-fund is also subject to corresponding valuation risks

and operational risks.

– Asset-backed and mortgage-backed securities, and

their underlying receivables are often intransparent.

The sub-fund may also be subject to a higher credit

and/or prepayment risk.

– CoCo-Bonds may entail significant risks such as coupon

cancellation risk, capital structure inversion risk, call

extension risk.

22


Disclaimer

This marketing document was produced for institutional clients, for distribution

in AT, CH, DE, ES, FR, GB, IT, LU, PT, SG (Professional Investors only).

This document is for information purposes only and does not constitute an offer,

solicitation or recommendation to buy or sell shares of the fund/fund units or any

investment instruments, to effect any transactions or to conclude any legal act

of any kind whatsoever. Subscriptions of shares of the fund should in any event

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Markets in Financial Instruments Directive 2014/65/EC (“MiFID”) or similar

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In particular, we wish to draw your attention to the following risks: Investments

in the securities of emerging-market countries may exhibit considerable price

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23


Disclaimer

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Global Corporate Bonds · 2020. 9. 17. · From rising stars to fallen angels but... Fallen angels...

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Transcript of Global Corporate Bonds · 2020. 9. 17. · From rising stars to fallen angels but... Fallen angels...