TwentyFour AM: Finding opportunities in fixed income

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This is a sponsored article from Vontobel.

In an investment landscape characterised by elevated geopolitical uncertainties and stretched valuations within traditional assets, TwentyFour Asset Management (TwentyFour AM), a subsidiary of Vontobel, advises investors to focus on capital preservation while pursuing alternative sources of return.

A specialist in fixed income, TwentyFour AM, was established in 2008 and to 30 June 2017, has grown its assets under management to USD13,054 million. The fund house now has 14 fund managers with an average experience of 18 years in investment.

The asset manager believes that while market dynamics are in a constant state of flux, opportunities abound and investors are still able to generate relatively stable and attractive income.

For the most part, 2017 has been a solid year for fixed income and risk-on assets, partly thanks to accommodative central bank policies, which are expected to remain supportive for some time despite the market’s concerns about interest rate normalisation.

Against this backdrop, TwentyFour AM sees a number of opportunities within the credit market.

“Our two favourite sectors in fixed income are currently subordinated debt within the banking sector in Europe and collateralised loan obligations (CLOs) within the asset-backed security (ABS) market,” says Eoin Walsh, founding partner and portfolio manager at TwentyFour AM.

Since the introduction of Basel III, fundamentals within the banking sector have improved significantly, particularly with regards to banks’ capital ratios. As such, the sector is now in a much stronger position to withstand any meaningful shocks.

Walsh adds that with the buyer base broadening, liquidity has been rising over the past few years.

“Although yields of subordinated debts have contracted compared to a few years ago, they remain attractive versus the overall bond market,” Walsh says, noting that ‘additional tier 1’ (AT1) securities offer yields of 5-6%.

While the buyer base is much smaller in the ABS market than it is in the traditional fixed income space, Walsh says that this means there are opportunities for active asset managers to extract relative value by taking advantage of market inefficiencies.

“In addition, most of the ABS use floating rates, which enable investors to avoid any duration risks,” he adds.

Walsh manages a long-only strategic income solution at TwentyFour AM. The strategy is able to invest in any geography or sector, and has an average duration of around 2.75 years. The strategy uses a number of tools to manage credit and market risks. For instance, it can take positions in the iTraxx index – the most liquid European credit default swap (CDS) high-yield index – to hedge credit risks.

This is a sponsored article from Vontobel.

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