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Fixed Income Strategies and Alternatives in a Zero-Interest Rate Environment - September 2016 - September 2016

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Fixed Income Strategies and Alternatives in a Zero-Interest Rate Environment - September 2016 - September 2016 September 2016 PROMOTION. FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR PUBLIC DISTRIBUTION Insurance linked Strategies Uncorrelated risk Premia and active Management Time to Look at European Asset Backed Securities Bringing Direct Lending to the Nordics Alternative Credit: an Oasis of Yield in the NIRP Desert Fixed Income Strategies and Alternatives in a Zero-Interest Rate Environment www.hedgenordic.com - September 2016 www.hedgenordic.com - September 2016 PROMOTION. FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR PUBLIC DISTRIBUTION Contents INTRODUCTION HedgeNordic is the leading media covering the Nordic alternative Viewing the Credit LAndSCApe MoMA AdViSorS roLLS expenSiVe VALuAtionS, But SupportiVe teChniCALS for investment and hedge fund universe. through An ALternAtiVe LenS out ASgArd Credit KAMeS inVeStMent grAde gLobal Bond fund The website brings daily news, research, analysis and background that is relevant StrAtegy to Nordic hedge fund professionals from the sell and buy side from all tiers. HedgeNordic publishes monthly, quarterly and annual reports on recent developments in her core market as well as special, indepth reports on “hot topics”. HedgeNordic also calculates and publishes the Nordic Hedge Index (NHX) and is host to the Nordic Hedge Award and organizes round tables and seminars. 62 20 40 the Long And Short of it - the tortoiSe & the hAre: gLobal CorporAte BondS - Targeting opportunitieS in SCAndinaviAn,independent, A DYNAMIC APPROacH TO FIXED INCOME & SRI/ESG in SeArCh of CouponS u.S. LeVerAged Credit eSg, CAt Bond inVeSting HIGH YIELD INVESTING HedgeNordic Project Team: Glenn Leaper, Pirkko Juntunen, Jonathan Furelid, Tatja Karkkainen, Kamran Ghalitschi, Jonas Wäingelin Contact: 33 76 36 48 58 Nordic Business Media AB BOX 7285 SE-103 89 Stockholm, Sweden Targeting opportunities in End of the road - How CTAs the Added intereSt Corporate Number: 556838-6170 The Editor – Faith and Fixed Income... Bringing Direct Lending to the Nordics 48 U.S. leveraged credit cope with the nearing end of of gLobal high 4 27 70 a bond super-cycle VAT Number: SE-556838617001 yieLd BondS New brooms to sweep clean at 2008 all forgotten-Nordic Fixed Income Does the 2016 Bounce in Emerging Catella’s fixed income funds The Tortoise & the Hare: Fixed Direct: +46 (0) 8 5333 8688 hedge funds hit new highs Markets Have Legs? 52 6 30 76 Income & SRI/ESG Mobile: +46 (0) 706566688 email: [email protected] Attractive Returns in The long and short of it - A dynamic Scouring the Globe for Income Danish Mortgage Bonds! approach to high yield investing 56 10 33 www.hedgenordic.com Scandinavian,Independent, The added interest of Global Corporate Bonds - Picture Index: © lchumpitaz---shutterstock.com, ESG, CAT Bond Investing global high yield bonds In search of coupons 58 Milkovasa---shutterstock.com, MorganStudio--- 14 36 AttractiVe returnS in shutterstock.com, Sergey Nivens---shutterstock. DaniSh MortgAge BondS! com, (c) sdecoret---shutterstock.com, alphaspirit--- Viewing the Credit Landscape Alternative Credit: Expensive Valuations, but Supportive shutterstock.com, Denis Vrublevski---shutterstock. 62 through an Alternative Lens com, ©-flyfisher---Fotolia.com, gualtiero boffi--- 16 An Oasis of Yield in the NIRP Desert Technicals for Kames Investment Grade shutterstock.com, isak55---shutterstock.com, Johan 40 Global Bond Fund Teodorsson---shutterstock.com, LaMiaFotografia-- Wealth Manager Perspectives Moma Advisors Rolls Out -shutterstock.com, Mikael Damkier---shutterstock. 65 on the Zero Interest Environment com, Saida Shigapova---shutterstock.com, Scott 20 Asgard Credit Strategy Insurance linked strategies Rothstein---shutterstock.com, James Steidl--- shutterstock.com, Michal Durinik---shutterstock.com, – uncorrelated risk PREMIA 44 and active Management olly---shutterstock.com, Andrey Yurlov---shutterstock. Time to Look at European 68 The hunt for yield com, Tashatuvango---shutterstock.com, uxorphoto--- 14 24 Asset Backed Securities 10 shutterstock.com PAGE PAGE 2 3 www.hedgenordic.com - September 2016 www.hedgenordic.com - September 2016 The Editor Faith and Fixed Income... upfront agreeing to be paid back less than its nominal worth today, everyone in the system is essentially admittung to Kamran G. Ghalitschi money being “worth-less.” From this perspective, the CEO / Publisher HedgeNordic whole system appears to be resting on rather shaky legs. Banks and central banks have been in collusion to print - Our monetary system is built on faith and trust. The Fiat some would say forge - paper money that has no intrinsic system we are so accustomed to today is no more than value and no asset backing. Just last summer, US Senator intrinsically valueless money used as tender by government Rand Paul succinctly attacked the Federal Reserve Bank, decree. It is mere faith and trust that if we take this legal saying: “Once upon a time, your dollar was as good as gold. tender of printed paper and engraved pieces of metal to Then, for many decades, they said your dollar was backed the market, we will receive a loaf of bread, bananas, or by the full faith and credit of government. Do you know whatever may be on the menu plan in return. what it’s backed by now? Used car loans, bad home loans, distressed assets and derivatives.” Or, as another American Consequently, the principle of interest-bearing instruments politician put it, “the US Dollar is no longer backed by gold, is the belief that someone will hold their promise to pay back but by aircraft carriers and armed drones, and our capability the principle on promised value you lent them, along with and willingness to use them to protect our interests.” High Yield doesn’t have another promise to pay you a coupon - more Fiat money. With sovereign interest rates hovering at record lows, many to mean high risk The real problem arises when this chain of faith is broken. investment professionals believe we are experiencing an Your marketer demands you barter your bread for a piece unsustainable bubble in the fixed income markets. Fitch of ham or a kilo of carrots, rather than with a piece of Ratings estimates that as of mid-August 2016, as much as Uncovering the most promising opportunities whilst managing downside paper. Some things work just fine, until they don´t. And $13.4 trillion of bonds were trading at negative interest risk. That’s our approach to investing in High Yield. If you haven’t considered the way we regard money may be just such an example. To rates. That is nearly as much as a third of all outstanding High Yield as a long-term option within a diversified portfolio, maybe me, a clear indication is that, when lending out money and global debt. Governments are issuing debt at negative you’re missing out. We have proven expertise in creating lower risk High interest rates while running up Yield portfolios capable of delivering attractive long-term returns. unsustainable deficits. Compounding the pressure, spreads have tightened • High Yield specialists since 1982 as investors reach further and further • An impressive track record in delivering attractive risk-adjusted returns for yield. • Portfolio managers have an average of 23 years’ industry experience In this Special Report on Fixed Income • Bottom-up proprietary analysis guides our investment decisions strategies, the objective is to identify • Strong focus on downside risk management and investigate where investors can turn to in the hunt for yield, and which Eaton Vance – avoiding the traps in High Yield strategies, products and managers may have an edge in this daunting, For more information please contact Sebastian Vargas, CFA historically unprecedented zero (if not on 020 3207 1984 or [email protected] negative!) interest rate environment. Faith, it seems, is more confidently tendered in the search for solutions. PAGE PAGE 4 eatonvance.co.uk 5 All information as at 30 June 2016. Issued by Eaton Vance Management (International) Ltd which is authorised and regulated by the Financial Conduct Authority in the UK. For Professional investors (as defined by the FCA Handbook) and professional advisers ONLY. Not intended for use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. www.hedgenordic.com - September 2016 www.hedgenordic.com - September 2016 NORDIC FIXED INCOME HEDGE FUNDS HIT NEW HIGHS by Jonathan Furelid – HedgeNordic 2008 ALL Among the five hedge fund categories tracked by a whopping 23 per cent during the year with the worst HedgeNordic, the fixed income category was by far the performing manager (among those still reporting) losing 83 biggest loser during the financial crisis in 2008. Since per cent of its value. There were also a number of funds then the recovery has been strong and Nordic fixed that were closed as a result of performance setbacks income funds, as measured by the NHX Fixed Income experienced during the year. index, ended the first half of 2016 at a new high. However, the recovery for the fixed income category is FORGOtteN- Since HedgeNordic started tracking the performance noteworthy. On an aggregate level, Nordic fixed income of Nordic Hedge Funds in December 2004, the fixed hedge funds had recovered completely from the drawdown income category has been on a rollercoaster ride. With in 2008 already by mid-2010. Since then, the fixed income underlying strategies typically aiming to deliver single digit category has outperformed the NHX Composite index returns to a low risk profile, the dislocations experienced significantly,
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