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GAM Star Credit Opportunities

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GAM Star Credit Opportunities seeks to generate steady, high income from the bonds of quality companies, with a focus on junior or subordinated debt to capture higher yields. The suite of three long only UCITS is managed by corporate bond specialist, Atlanticomnium S.A., whose careful bond selection, biased towards the financials sector, results in a liquid, diversified portfolio with low duration risk.

In order to seek higher yields we focus on the junior debt of national champions, which offer a better return than senior debt.
Anthony Smouha Portfolio Manager, GAM Star Credit Opportunities

Our Edge

Long track record

Atlanticomnium has one of the longest track records available, having successfully managed the strategy since 1985.

Experienced investment team

Fund managers have many decades of combined investment experience, supported by an investment team with in-depth knowledge of debt markets and issuers and strong experience of credit analysis.

Highly diversified portfolio

The fund enables access to some of the best opportunities in bonds from banks and insurance companies, as well as corporates.

Simple Structure

The fund is a long only, daily dealing UCITS fund, offering both accumulation and income share classes.

Portfolio stability

Buy and hold long-term investment approach, based on strong credit convictions, consistency of the investment philosophy and structure of the strategy over time.

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, Patrick Smouha and Romain Miginiac have many decades of 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. 

With a focus on high-quality financial issuers, current valuations of our securities provide attractive yields while their credit fundamentals remain rock solid. Financials remains one of the strongest sectors within credit markets, and with balance sheets strong enough to bridge central banks’ lending, can be part of the solution to the current crisis.
Jeremy Smouha, CEO, Atlanticomnium S.A. (UK)
Anthony Smouha
CEO, Atlanticomnium SA
Gregoire Mivelaz
Fund Manager, Atlanticomnium SA
Patrick Smouha
Fund Manager, Atlanticomnium SA
Romain Miginiac
Fund Manager & Head of Research at Atlanticomnium SA

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

The bottom-up process uses in-depth fundamental credit analysis to identify conviction issuers with strong credit metrics favourable to bond investors. Research is focused on mitigating downside risk in line with the team's capital preservation objective. The team performs a deep-dive analysis of individual bonds to find the most attractive ones within the capital structure, including a detailed understanding of the prospectus, issuers’ capital structure and regulatory framework. Positions are selected and sized to achieve income and capital appreciation potential, as well as to manage and mitigate credit interest rate and liquidity risk via diversification. The last step of the process is risk control and portfolio monitoring where the investment team monitors the credit quality of issuers, allocations and risk parameters of the fund as well as adherence to UCITS regulations, the restrictions laid out in the fund's prospectus and the team's internal limits.

1

Issuer selection

  • Bottom-up research and in-depth fundamental credit analysis
  • Identify issuers with strong credit metrics and favourable corporate governance
  • Research process focused on downside risk
2

Bond selection

  • Assess and understand capital structure
  • In-depth, analysis of prospectuses
  • Assess instruments' attractiveness
3

Portfolio construction

  • Select and size issues for potential contribution of
    • Credit risk
    • Interest rate risk
    • Liquidity risk
  • Diversify across instrument structures, capital structures and sector / sub-sector
4

Risk control and portfolio monitoring

  • Closely monitor changes in credit ratings, liquidity, prices and relative positions
  • Strong focus on liquidity throughout the process

Current Market opportunity

Why bonds

With global interest rates widely seen to be at - or very close to - their peaks as inflation worries ease, bonds now offer investors an opportunity to lock in highly attractive levels of yield.

Regulations make the financial sector safer

Increased transparency and periodic stress tests makes the European financial sector one of the strongest available and as bondholders investing in those subordinated debts, solvency risk has largely diminished.

Why sub-debt for financial sector

Investors benefit from the strong credit quality of these issuers, in addition to benefiting from a significantly higher income.

The power of pull-to-par

While income is steady, the price of a bond fluctuates; however, as long as the default risk does not increase, it typically converges toward par value. Therefore, if the price of the bond declines, but the default risk does not change, a unique opportunity to invest is created.

Extension risk as a buying opportunity

When callable perpetuals are priced to perpetuity because of weak market conditions, they tend to gradually reprice to the next call date as soon as the situation stabilises. This means there is the potential for high capital gains.

Legacy bonds

While the price of bonds has declined, regulatory framework has not changed, meaning free option in terms of capital gains has just increased, as issuers will need to take these bonds out.

Fundamentals are the strongest in recent history

Capital ratios
With excess capital at all-time highs, we believe bondholders have never been safer.

Non-performing loans are low
More than a decade of de-risking has led to a radical clean-up of banks’ balance sheets.

Liquidity
Far exceeds requirement for European Banks’ average regulatory liquidity ratios.

Reasons to favour the asset class

Steady income

By investing in subordinated bonds, investors can capture a reliable income from investment grade companies.

Built to deliver capital preservation

Investment grade companies rarely default, so by extension their bonds rarely default. Investors can benefit from the strong credit quality of these issuers.   

Low sensitivity to interest rates

Large availability of different bond types by maturity and coupon characteristics.

REGULATIONS MAKE THE FINANCIAL SECTOR SAFER

Increase transparency and periodic stress tests makes the European financial sector one of the strongest available and as bondholders investing in those subordinated debts, solvency risk has largely diminished. 

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.

Active Thinking Video

Atlanti’s Gregoire Mivelaz highlights the three major events of Q3 that impacted his investment universe: earnings, bond call dates and the reopening of primary markets. He believes given we are now in a late credit cycle, credit quality matters for investors. And he notes that market mispricing is continuing to lead to opportunities.

This is an asset class that should not just deliver in terms of income, but has great optionality in terms of providing price appreciation too.

Our Thinking

Investment Opinions
European Bank AT1s – Back to business
20 March 2024

A year ago, the Credit Suisse crisis reverberated through European bank bonds. As we mark the anniversary, Atlanticomnium’s Romain Miginiac delves into the dynamics and future prospects of the AT1 market.

Investment Opinions
Banking the profits - European banks Q4 earnings demonstrate the sector's strength
27 February 2024

Impressive results from Europe’s banks continue to reflect years of balance sheet strengthening, regulatory changes and the end of the era of rock-bottom interest rates.

Outlook 2024
Outlook 2024: Romain Miginiac (Subordinated Debt)
December 2023

Subordinated debt – A clear dislocation between fundamentals and valuations

Our Thinking

Fund Information

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Contacts

Please visit our Contacts and Locations page.

GAM Star Credit opportunities is a sub-fund of GAM Star Fund p.l.c., registered office at Dockline, Mayor Street, IFSC, Dublin, D01 K8N7, Ireland, an umbrella investment company

Disclaimer: Past performance is not an indicator of future performance and current or future trends. The indications could be based on figures denominated in a currency that may be different from the currency of your residence country and therefore the return may increase or decrease as a result of currency fluctuations. 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. Any reference to a security is not a recommendation to buy or sell that security.

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