PRESENTER: For an insight into the Global High Yield Bond Strategy run by Standard Life Investments, I’m joined now by the Head of Global High Yield Bonds, Erlend Lochen. Erlend, talk us through the investment process.
ERLEND LOCHEN: At Standard Life Investments, we tailor credit selection to the overall environment, with a strong focus on fundamental research and downside risk. We don’t take a strong top-down approach when investing in global high yield, but for credit research and portfolio construction we take the environment into account. We believe that’s important because if you do skip that environment part you lose a dimension of investing in credit. However, when you invest in global high yield the key thing to get right is fundamental credit research so as to avoid the losers and pick the winners.
So we believe the best way to invest in global high yield is to tailor credit selection to the overall environment, with a strong focus on fundamental research and downside risk.
PRESENTER: So how is the team structured, and what advantages do you think that gives you?
ERLEND LOCHEN: Standard Life Investments is a global asset manager with a global footprint. We view high yield as a global asset class. Therefore, we structure the team and approach accordingly.
First of all, we have a strong local presence in both North America and Europe, with full-scale teams on both sides of the Atlantic. By full-scale teams I mean portfolio managers and analysts on both sides of the Atlantic. We view that as very important to have a balanced team setup. Secondly, our analyst recommendations matter. The analyst sits close to the portfolio. They know what’s in the portfolio; they take ownership of the holdings in the portfolio.
Importantly, we do not work in silos. We work in an integrated team structure, with everyone working together. And we believe that benefits us, particularly when you invest in global high yield in a holistic way.
PRESENTER: So what makes a global high yield bond manager well placed to navigate what’s going on in the markets?
ERLEND LOCHEN: When taking a global holistic view of the market, there’s a way you can play the market within names and sectors and geographies that you can’t do in a portfolio constructed with a local bias.
Firstly, when it comes to names, we get bonds in sterling, in euros and dollars. At certain times, the names in certain currencies are cheaper than others, and who doesn’t want to buy something cheaper in one currency versus the other one if you can. In a global portfolio that’s a lot easier.
Secondly, there are certain times you want to play a sector in one geography versus another one; this is also easier to do in a global holistic portfolio. Last but least, there are certain times you prefer one market versus the other. If you prefer the European market versus the US market in a global portfolio, you can do this more easily than in a locally managed portfolio.
We view high yield as a global asset class. A large opportunity set leads to a larger hunting ground to find the best names in the global high yield market.
PRESENTER: What do you think makes you and your team different to the other global high yield managers out there?
ERLEND LOCHEN: Firstly, at Standard Life Investments, we tailor credit selection to the overall environment. We take a strong fundamental approach to finding the winners and avoiding the losers. Secondly, we have a global footprint that gives us a good reach, and thirdly, we integrate well with our equity and multi-asset colleagues.
We are not a credit boutique; we are a credit team within a large organisation and we benefit from this. By working together with our equity colleagues and our multi-asset people, we get additional knowledge about sectors and names. Also, from the multi-asset people, we get their understanding of the overall global which benefits us hugely when we do credit selection tailored to the overall environment.
We think this structure has driven the good risk-adjusted return of the portfolio, and we believe we have capacity to grow the strategy, which is important in the current global high yield environment.
PRESENTER: So how attractive are the current market conditions for global high yield bonds?
ERLEND LOCHEN: High yield is a growing global asset class. With a strong presence in North America and Europe, we believe we’re in a good position to take advantage of that growth and benefit from the global opportunity set. When it comes to high yield, you can’t avoid talking about defaults. Within an improving economy in both North America and Europe, we don’t believe in a near-term increase in default rates. However, if we’re wrong with the latter, we think our approach to investing in credit, with a strong fundamental focus, significant focus on downside risk, makes us well positioned to benefit in that environment. Historically, we’ve been particularly strong in weaker credit environments when it comes to performance.
PRESENTER: Erlend Lochen, thank you very much.
This communication is intended for investment professionals only.
The opinions expressed are those of Standard Life Investments as at May 2015 and are
subject to change at any time due to changes in market or economic conditions.
This material is for informational purposes only. It should not be relied upon as a forecast,
research or investment advice. It does not constitute an offer, or solicitation of an offer, to sell
or buy any securities or an endorsement with respect to any investment vehicle.
Past performance is not a guide to the future.
The value of investments can fall as well as rise and investors may get back less than they invested.