Dynamic Bond Trust Investment Process
The Dynamic Bond Trust operates a superior fundamental analysis from a ‘top down’ and ‘bottom up’ approach, plus diversification across multiple sources of alpha. The fund manager and Fixed Income team are committed to implementing active duration and default risk-management, and constantly innovating in investment techniques and strategies.
The key to sustainable returns lies in the embedded risk management process of the fund, together with the adoption of hedge-fund techniques and strategies to enable us to extract additional alpha through efficient implementation.
Credit investment process
1. Global Macro and Asset Allocation
Our asset allocation policy is based on our current ‘house view’, which is set by our in-house asset allocation committee. This reviews a wide range of historic and forecast data from the major global economies, including GDP growth, inflation, exports/imports, capital investment, consumer expenditure, money supply, current account, government finances, corporate earnings growth, PER, dividend growth, dividend yield and current futures pricing.
The committee then uses this information to determine the relative attractiveness of various markets. The asset allocation policy set is then implemented to client portfolios, bearing in mind the individual risk parameters of a client and/or fund.
For the Dynamic Bond Trust, our aim is to identify those factors we believe will be the drivers of bond market movements in the months ahead, rather than relying on a particular style bias (e.g. growth or value) or operating under a purely ‘black-box’ quantitative or deterministic approach.
2. Global high yield
Our philosophy is that good investment performance can be consistently achieved through a fundamental research-driven process. Our approach to managing high-yield bond portfolios centres on the following concepts:
- Focused on total return
- Driven primarily by income, not price gains
- Security of capital is paramount – add value by disaster avoidance
- Conservative strategy better than speculative approach
- Diversification
- Quantum of debt is unconnected to quality
- Rather sell too early than hold for too long
- Invest in ‘higher quality high yield’.
3. Global Investment Grade
The basis of our investment style is our philosophy that value can be consistently added to portfolios through a fully integrated team approach following a fundamental, research-driven process.
The corporate bond investment process is predominantly judgemental and, whilst biased to a top-down approach, it also benefits from strong bottom-up influences from a team of experienced credit analysts. Scorecards are used at each stage of the investment process, ensuring that a consistent and disciplined approach is followed. This system also ensures that the judgemental decision-making process remains transparent.
4. Credit Research Analysis
Our credit research team works together to produce most of our proprietary research. The twelve dedicated credit analysts in the two teams provide views on individual companies, whilst the credit fund managers formulate strategy for asset allocation and sector selection.
Approximately 90% of the high yield research is conducted using internal sources, but the analysts also review a combination of rating agency reports and equity broker research to assist in their analysis. Equity research is also used because it is typically of a higher quality than the research produced by bond market analysts. This approach fosters good communication and idea generation within the team, which enhances the stock selection process.
Approximately 10% of credit research is from external sources. We use a combination of rating agency reports and equity broker research. This information is placed into our internal analytical framework.
Across both credit teams (high yield and investment grade), formal strategies are reviewed on a weekly basis. In-depth market reviews are presented at bi-monthly strategy meetings.