GAM Talks Podcast Episode Six - Jeremy Smouha14 May 2020
GAM Talks Podcast Episode Six - Jeremy Smouha
Q2 2020 will most likely be remembered as one of the worst quarters for global GDP growth since World War II. In a time of uncertainty, we believe investors are better off owning bonds than equities.
GAM Talks Podcast Episode Six - Jeremy Smouha
Following the release of Q1 earnings statements, Atlanticomnium’s Romain Miginiac suggests that Covid-19 has not derailed the credit story of European banks.
Atlanticomnium’s Gregoire Mivelaz shares his thoughts on the importance of the big banks during the Covid-19 economic crisis.
Subordinated debt has not been entirely immune from the impact of the coronavirus outbreak on financial markets. Even so, Atlanticomnium’s investment team believes there is evidence to suggest this event remains manageable from a credit perspective.
Atlanticomnium has one of the longest track records available, having successfully managed the strategy since 1985.
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.
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.
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.
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)
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
Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.
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.
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.
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 in a limited number of securities and industry sectors may result in more volatility than investing in broadly diversified Funds.
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.