Global Unconstrained & US Fixed Income

Our investment team, based across Asia, the US and EMEA, are experts in their fields and communicate their ideas through our proprietary technology platform, the Investment Opinion Network (ION). This collaborative structure has established a transparent, research-based investment culture that allows our investment professionals to capture a wide range of return drivers.

Investment Philosophy and Approach

Our approach centres on having a team of focused and experienced specialists, drawing on an extensive global network of analysts with local and specialist knowledge.

Our investment process consists of two distinct phases with Investment Idea Generation and Product Design conducted separately and independently. For idea generation, we follow a broad range of global alpha sources, including those related to developed and emerging market sovereign instruments, semi-sovereign and agency instruments, corporate bonds, structured and mortgage securities, currencies and derivative instruments. Product Designs provide a transparent specification for how investment views are used to adopt risk, so as to produce the client’s desired outcome. The purpose of the design process is to apply the idea generation process to the client’s objective, consistent with the client’s guidelines and investment policy.

Idea generation begins with investment research. First, research isolates the drivers of alpha source price. Second, research determines the influence of these drivers on alpha source price. And third, research aggregates these influences, ultimately forming the basis for an active position. Output from the research process is expressed in a common language so it can be managed and shared across the globe through our Investment Opinion Network (ION). Each analyst is accountable for the views they share on ION. These views are independent of any overarching view. Investment ideas are evaluated, updated, and communicated in real-time. These views are communicated throughout our platform irrespective of which client products the views are currently invested in. ION allows input and, in doing so, allows different analysts in different investment centres to debate and discuss as though they were taking part in a virtual meeting. ION provides measures of decision and research quality as well as tools for investors to monitor and improve their decision making skill.

Our design process engineers products to meet unique objectives. The inputs to product design are client objectives and constraints, alpha source (investment idea) breadth, our expected skill, and the market characteristics of alpha sources. Product design methods are flexible and can address many products and solutions. When complete, the design process yields a matrix that specifies which alpha sources contribute to portfolio risk, how they are used and how the alpha source exposures align with position signals. The design forms the foundation for risk adoption and risk management.

The design process is built around a number of design principles, including: 1) The design must be achievable, 2) The design should be all-weather, and 3) The design should offer a reasonable risk/return proposition to the client, after fees. Wherever clients allow us latitude, the design should be broad and balanced in terms of alpha source usage. These principles are most useful in comparing designs, as any set of client objectives and guidelines could be satisfied using many different designs. Risk adoption/adjustment for allowed alpha sources occurs as views are created or changed, provided that they are part of the design. The combination of design and signal changes creates portfolio risk adoption for allowed alpha sources.

Idea Generation and Product Design are supplemented through investment process Alignment. Alignment involves a series of routine methods and processes intended to measure the effectiveness of the process while providing a basis for control and risk management. Most of our alignment process involves measures where actual outcomes are assessed against process targets. These differences (actual outcomes against targets) form the information used in our quality management processes. Quality management attempts to improve process outcomes by adjusting the process’ dials.

"We believe long-term, repeatable investment performance is achievable when quality control methods are applied to each element of an investment process." 

Team Profile

Our experienced team of specialists, based across Asia, the US and EMEA, has a long track-record of working together and investing across the global fixed income universe, seeking to deliver attractive risk-adjusted returns. The team draws on the deep knowledge and resources from specialist across our global fixed income platform, blending together global opportunities to achieve our clients’ objectives.

The team is led by Stephen Johnson, Head of US Fixed income, who has over 30 years’ experience and has been with First State Investments for over 3 years.

8
19
yrs
2
yrs

Stewardship And ESG Integration

The Global Unconstrained Fixed Income team defines Responsible Investment as an investment process that considers environmental, social and governance indicators alongside traditional indicators of financial performance. Importantly, our process does not implement ethical screens. We consider ESG factors relative to their potential impact on financial performance.

We believe that ESG issues have a significant bearing on risk. ESG factors are incorporated into our assessment of the drivers of alpha source prices and the influence these drivers have on alpha source price. While ESG factors can be important to a variety of fixed income investments, corporate securities are where those risks are most prominent. Poor corporate and regulatory governance are recognised contributors in most corporate failures. In addition, dangerous environmental and social practices can lead to significant financial cost, as well as reputation and brand damage.

In our process, we view the comparison of ESG policies and the practices of bond issuers as a risk management exercise, making the ESG risk-assessment an integral part of our security selection process. Provided that the ESG analysis is skilful and focused on the potential for events to affect bond prices, we believe the benefits to investors will show up over time.

Because ESG risk-assessment is incorporated into our idea generation stage, all client portfolios benefit from our consideration of these factors. Because product design is done independently from idea generation, clients have the option to further shape their portfolios using ESG factors. These options include negative or positive ESG screens. We can work with clients to incorporate other ESG ideas into their product designs based on their views and requirements.

Assessment and monitoring
Analysts identify ESG risks during their bottom-up credit research. We analyse ESG risks through our own risk framework that results in a proprietary ESG ranking. Analysts consider these risks alongside their own research with reference to a variety of other drivers that frame an assessment of price-focused risk.

The analysis and assessment of ESG issues within a company helps identify sources of risk which may not be fully captured by its financial statements. These factors, along with our other relative-value focused drivers, allows us to further articulate our view of default risk than the balance sheet might otherwise imply. The result is a more articulated view of RV-return in identifying mispriced risk spreads in the market.

Integration
As part of our price-driven relative value credit process, we assign a proprietary internal credit rating (ICR) to every credit we review. The ICR is a forward looking measure of default risk and is one of the fundamental outputs of our research process. The ICR incorporates the ESG risk(s) inherent to an issuer. Our ICR is on the same scale as that assigned by the ratings agencies, but often materially different for individual issuers.

Engagement
Our key engagement with companies focuses on understanding their ESG risks and their approach to managing those risks. For example, we are interested in understanding current government regulatory risk within the Healthcare sector as viewed through the lens the of Pharmacy Benefit Manger (PBM) key business outcomes – an element that we believe might have dramatic impacts on future earnings generation. A challenge for responsible credit investors has been effective ESG engagement with issuers, however our experience is that there is a growing trend with issuers addressing key ESG issuers with the investment community. We believe heightened transparency around ESG statistics and data points from companies is a critical part to making informed, value-added ESG determinations, and are advocates of this trend.

For further information please refer to our credit research process description.

"While ESG factors can be important to a variety of fixed income investments, corporate securities are where those risks are most prominent. Poor corporate and regulatory governance are recognised contributors in most corporate failures."

"Because ESG risk-assessment is incorporated into our idea generation stage, all client portfolios benefit from our consideration of these factors. Given product design is carried out independently from idea generation, clients have the option to further shape their portfolios using ESG factors."

Investment Information And Performance

Performance history has not been provided as the team has been running for less than three years. 

Investment characteristics 

Credit sector breakdown - Bluebottle Strategic Absolute Return Fund

 Source: First State Investments

Please follow this link for information on how our RI and Stewardship Measures are calculated. 

Credit rating breakdown - Bluebottle Strategic Absolute Return Fund

Source: Calculated by BRS Aladdin using data from Moody’s, S&P and CFSGAM