Amilton AM’s fixed-income and multi-asset team cooperates to offer an appealing solution to lower yield for longer. Facing continued pressure for investors generated by the drop in yields, Amilton AM has taken the time to think about it to put in place an investment solution adapted to the environment that is emerging for the years to come. This reflexion resulted in an innovative management philosophy but above all, in a appealing approach in the origination of investment themes and more generally in decision-making.
A collaborative model centered on curiosity and critical thinking in opposition to the cult of the star manager
From the outset, we wanted to avoid centralized decision-making around a star manager imposing his vision of the market. Our approach intends to be collaborative, involving the responsibility of each member of the management team on every investment decision. The market experience of each manager is a source of richness that makes it possible to cover an ample number of investment themes which are subsequently studied, debated and sometimes contested during the team’s permanent dialogue and more formally during the weekly management committees. This culture of debate empowers all team members with each new trade and makes it possible to build a portfolio of convictions.
An addition of know-how to diversify the sources of returns
A single manager cannot claim to master all asset classes and their different segments on an international scale. The addition of our expertise in fixed-income and asset allocation allow us to consider the market from both a bottom-up and a top-down perspective. Initially, discussions between the two teams make it possible to define a common vision of the environment and the most appropriate level of risk for the portfolio in the market context. The fixed-income team then sets up a portfolio made up of short-term credit and government bonds with the aim of maximizing the portfolio’s carry in a world of 0 rates, while ensuring the financial soundness of issuers.
Finally, the multi-asset team builds Macro themes via directional or arbitrage strategies resulting from internal research. Having a broad investment universe like ours is a source of opportunities with the counterpart of the need to have human and technological resources adapted to the density of information. The use of both internal and external quantitative indicators, is, therefore, an integral part of our investment process and allows us to effectively monitor all of the market dynamics of interest. The control of the risk budget of each pocket and the risk management at the portfolio level is essential to preserve the management objective.
The Covid-19 crisis has confirmed that a buy & hold approach is no longer sufficient
In a market where liquidity is structurally deficient, it is more than ever necessary to be opportunistic and selective in bond-picking. In particular, you have to be able to reduce the risks of a credit portfolio when the risk-return ratio is no longer sufficient and accept to increase the cash. This counter-cyclical approach implies being patient when credit spreads are too low and relying on macro strategies to diversify the sources of return. The dynamism of the primary market, idiosyncratic events or market stress invariably end up providing new investment opportunities and thus improving the carry of the portfolio.
Thinking outside of the box
We believe that the specificities of each region and asset class should be explored. The positioning in the economic cycle, the diversity of political, budgetary, monetary and climatic situations are all opportunities for investors curious to understand the peculiarities of each circumstance. Some approaches that are too global or too static are no longer suitable and the principle of holding certain assets in all circumstances must be abandoned in favour of flexibility. From a geographical point of view, the emerging countries are an example of assets too often considered as a homogeneous block while their political and economic situations are increasingly differentiated.
By way of illustration, in 2019, our positions in Australian government bonds were representative of our way of operating. After identifying areas with a fragile real estate sector, we delved into the macroeconomic fundamentals of three different countries: Canada, Sweden and Australia. The latter appeared to us to be the most vulnerable with, besides, a risk linked to its exposure to China in trade war environment. The flexibility of the BoA (low debt, weak balance sheet, low inflation, high rates, etc.) prompted us to position ourselves on 10-year rates. This position subsequently evolved tactically into a relative trade against US rates and then into a flattening position of the curve to take advantage of a potential Australian quantitative easing plan before we took our profits and repositioned the fund on others more attractive opportunities in 2020.
Amilton Strategic Income in a nutshell:
- The combination of fixed-income and multi-asset expertise for better sustainability of returns
- A volatility target below 3% adapted to the needs of investors looking for yield
- A collaborative and global approach promoting opportunities and questioning
- A flexible and reactive management through exclusively liquid strategies