Talking Factsheet
Sterling Corporate Bond Strategy
Harry Richards gives an overview of Jupiter’s sterling corporate bond strategy, how the investment process works, and how the team seek to generate alpha.
The strategy primarily invests in sterling investment grade corporate bonds. And what we're trying to achieve is outperformance over the medium to long term and ideally on a risk adjusted basis as well. So having good risk adjusted ratios is something that we would love to see in the strategy. It tells us we're doing our risk management well. In terms of what the proposition really provides clients, it provides extra yield above and beyond of what you find in the government bond market. And if you can stock pick effectively, you know, that should deliver excess yield in a defensive asset class that provides diversification away from equities.
How does the team invest in order to achieve the strategy's objectives?
We have three pillars with which we use to invest. And they are that we're active, pragmatic and risk aware. And what we mean by the active element is that, we are active managers here at Jupiter. And that's very much the case for the strategy. And so we use all the levers at our disposal, to try and generate those returns.
And what I mean by that are, you know, duration and credit risk, to try and outperform our peer group. When it comes to the pragmatism element, there are various strategies within the sector that do have certain biases, whether that's long duration or short duration or high credit risk or low credit risk, on an almost permanent basis.
And what we're trying to do is navigate that without those biases. And so we may be overweight, we may be underweight all of those at given points during the cycle. And the last is that, you know, as credit investors, we are always risk aware. We always have to consider the downside before ultimately, you know, considering what returns may follow.
And that's because of the asymmetry within the asset class. There is mathematically more downside than upside. And so when you combine those together, you know, ultimately, that should help deliver on our strategy.
Where does the team gain an investment edge that allows them to generate alpha?
Jupiter's investment platform is incredibly strong. We've got a ton of brilliant managers and some great investment analysts that create a really fertile environment for alpha generation. And we think that's one of the key strengths of running a fixed income portfolio, at Jupiter. When it comes to the specifics of the strategy, we think that the, the approach is pretty unique.
Being active, pragmatic and risk aware is not something we frankly hear from a lot of our competitors. And over time, we think that that could help us and it has helped us generate alpha. The third and final thing is that the strategy is run with co-managers, myself and Adam Darling, and we operate a two in, one out policy.
And specifically with regards to that risk awareness, what this allows for us to do is really manage those downside scenarios. Both of us have to agree for something to go into the portfolio, but only one of us has to sour on it for that to leave the portfolio. And we found that to be a really effective risk valve for the strategy over the years.
Why invest in corporate bonds?
The sterling corporate bond universe is not homogeneous, so recognising and respecting the wide dispersion in risk/return characteristics within the market is key to generating sustainable alpha over time. The Jupiter Corporate Bond Fund is style agnostic, guided by the fund managers’ in-depth assessment of the macro environment and bottom-up fundamental credit analysis. The fund managers place an emphasis on being active, pragmatic and risk aware in their search for strong risk-adjusted returns.
Key features of the Jupiter Corporate Bond Fund
The fund’s investment process begins with an assessment of the global macroeconomic landscape and combines this “top down” framework with detailed credit analysis on each bond issuer. The process is both holistic and highly repeatable, with the aim of ensuring optimal fund positioning throughout the market cycle.
Global macroeconomic assessment
Top-down credit valuation analysis
Bottom-up valuation filter - Properietary market screening tools
Fundamental credit analysis
Investment
Active and pragmatic
The fund managers take a high conviction, active approach to managing the fund. They use duration and credit exposure as they sweat the asset class in search of strong risk-adjusted returns. The fund managers look to avoid dogmatism – they are not inherently aggressive or defensive investors, instead striving to ensure that the fund’s positioning adapts to their assessment of an ever-changing economic landscape.
Risk aware
Risk management is at the heart of the fund’s investment process. The fund managers focus on in-depth credit research to understand business and financial risks, believing that minimising the risk of permanent capital loss is key to generating sustainable returns for investors.
Core to the fund’s investment process is therefore (i) the identification of issuers with robust business models where the credit profile will improve further going forward, and (ii) the avoidance of those companies where the credit profile is at risk of further deterioration.
In addition to understanding the underlying credit risks, the fund managers focus on liquidity and market technical factors to ensure that fund positioning can be rotated as necessary.
Important Information
The fund can invest up to 20% in non-rated bonds. These bonds may offer a higher income but carry a greater risk, particularly in volatile markets. In difficult market conditions, it may be harder for the manager to sell assets at the quoted price, which could have a negative impact on performance. The fund may use derivatives which may result in large fluctuations in the value of the fund. Counterparty risk may cause losses to the fund. In extreme market conditions, the Fund’s ability to meet redemption requests on demand may be affected. The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. This fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Fund may be more than 35% invested in Government and public securities. These can be issued by other countries and Governments. Your attention is drawn to the stated investment policy which is set out in the Fund’s prospectus.
Meet the team
The Jupiter Corporate Bond Fund has been jointly managed by Harry Richards and Adam Darling since April 2018. The pair bring complementary skills to credit portfolio management, combining detailed analysis on corporates and their capital structures, with a deep understanding of the macro environment. Harry and Adam have significant credit research resources at their disposal, while benefiting from the holistic view of global fixed income markets that comes from being part of Jupiter’s broader fixed income team.
Fund specific risks
- Interest Rate Risk - The Fund can invest in assets whose value is sensitive to changes in interest rates (for example bonds) meaning that the value of these investments may fluctuate significantly with movement in interest rates.e.g. the value of a bond tends to decrease when interest rates rise.
- Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
- Contingent convertible bonds - The Fund may invest in contingent convertible bonds. These instruments may experience material losses based on certain trigger events. Specifically these triggers may result in a partial or total loss of value, or the investments may be converted into equity, both of which are likely to entail significant losses.
- Credit Risk - The issuer of a bond or a similar investment within the Fund may not pay income or repay capital to the Fund when due.
- Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
- Derivative risk - The Fund may use derivatives to generate returns and/or to reduce costs and the overall risk of the Fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.
- Counterparty Risk - the risk of losses due to the default of a counterparty e.g. on a derivatives contract or a custodian that is safeguarding the Fund's assets.
For a more detailed explanation of risk factors, please refer to the "Risk Factors" section of the Scheme Particulars.
This is a marketing communication. Investors should carefully read the Key Investor Information Document (KIID), Supplementary Information Document (SID) and Scheme Particulars, particularly to the fund’s investment objective and characteristics including those related to ESG (if applicable), before making any final investment decisions. These are available from the document library.
