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GAM Star Credit Opportunities

Reasons to Invest

Rich hunting ground for established players

With increasing investor interest in credit, many newer market participants are simply focused on chasing higher yields, which can cause market inefficiencies.

Wide opportunity set

Ongoing regulatory developments have forced many banks to bolster their capital base and improve the quality of their loan books, thus creating attractive opportunities.

Investment in quality companies

Investment grade companies rarely default, so by extension their junior debt rarely defaults. Investing lower down such companies’ capital structures can offer an attractive combination of yield, value and capital preservation.

Compelling alternative

The strategy offers a compelling alternative to traditional high-income bond investments, where high income is sought from the debt of risky companies or higher risk countries.

Our Edge

Strong, long-term performance

The team has actively managed bond portfolios through economic and credit cycles since 1985, learning how to adapt to different markets and regulatory environments.

Specialist team

Extensive understanding of niche credit instruments and companies’ capital structures enables the team to access overlooked and often undervalued bonds in the market.

Active management of duration risk

The team uses a range of instruments through which subordinated debt is issued, such as fixed-to-floater and floating-rate notes, to actively manage duration risk.

Flexible approach

With no style bias or the constraint of a benchmark, the team can focus on areas of ripest opportunity and best reward-to-risk trade-offs, to seek performance across market environments.

Philosophy and Process

Investment Philosophy

The team believes that attractive yield can be captured from corporate bond investing without incurring unnecessary default or interest rate risk. Investing lower down the capital structure, where upside payoffs can be enhanced if a company succeeds, means going beyond the traditional credit approach and understanding not only a company’s creditworthiness, but also its fundamentals. The team believes that targeted, fundamental credit analysis focused on the corporate quality and capital structure of investment grade companies can potentially harness strong total returns.

Investment Process

Top-down and bottom-up research identifies profitable, growing, cash generative companies that issue subordinated or hybrid debt. The team analyses the risk/return of where to invest optimally within the capital structure, from senior to the most junior bonds under a range of scenarios from default to prosperity. Set against their understanding of the evolving market environment, the team selects and sizes each issue so that it contributes appropriately to the portfolio in terms of credit, interest rate and liquidity risk. Ongoing risk management involves monitoring changes in credit ratings, pricing, liquidity and relative positions, and applying fundamental stop losses.

1. Issuer selection

  • Form views based on topdown and bottom-up sources
  • Fundamental credit analysis identifies companies willing and able to pay

2. Bond selection

  • Bottom-up analysis of capital structure and subordinated debt
  • Choose investment in optimal part of the capital structure

3. Portfolio construction

  • Select and size issues in terms of risk contribution
  • Buy and hold mentality; build positions gradually

4. Risk control and portfolio monitoring

  • Management of credit risk is of prime importance
  • Strong focus on liquidity and mitigating liquidity risk

Investment Team

The fund is managed by Atlanticomnium S.A., an independent Geneva-based fund management company, which has specialised in credit investing since it was founded in 1976. The firm has managed assets for GAM since 1985.

Fund managers, Anthony Smouha, Gregoire Mivelaz and Patrick Smouha, have over 60 years’ combined investment experience. The primary source of added value for the portfolios is the bottom-up credit selection ability of the managers and their familiarity with junior debt.

They are supported by a team of analysts and strong dealing capability, as well as other internal resources. An additional risk oversight function is performed independently by GAM’s risk teams.

In the post-2008 era, finding attractive sources of yield has proved a perennial challenge. Nevertheless, it remains possible to construct a high-quality portfolio with a significant yield premium
Anthony Smouha, CEO, Atlanticomnium S.A.

Fund Information

Key Risks

Credit Risk / Debt Securities

Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.

Credit Risk / Non-Investment Grade

Non-investment grade securities, which will generally pay higher yields than more highly rated securities, will be subject to greater market and credit risk, affecting the performance of the Fund.

Interest Rate Risk

A rise or fall in interest rates causes fluctuations in the value of fixed income securities, which may result in a decline or an increase in the value of such investments.

Liquidity Risk

Some investments can be difficult to sell quickly which may affect the value of the Fund and, in extreme market conditions, its ability to meet redemption requests.

Concentration Risk

Concentration in a limited number of securities and industry sectors may result in more volatility than investing in broadly diversified Funds.

Capital at risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Resources

Fund Profile - GAM Star Credit Opportunities

Risk management at GAM

Review and Outlook - GAM Star Credit Opportunities

2018 Review and Outlook for 2019

Our Thinking

Investment Opinions 10 min read

Opportunities in Credit: 2018 highlights and 2019 outlook

Tuesday, January 22, 2019

The Credit Opportunities team reviews 2018 and outlines its outlook for 2019, a time where valuations of financial credits appear attractive on both an absolute and relative basis.

10 min read

Contacts

GAM Star Credit opportunities is a sub-fund of GAM Star Fund p.l.c., registered office at George’s Court, 54-62 Townsend Street, Dublin 2, Ireland, an umbrella investment company