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Global Credit

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Strategy Overview

Key Facts

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We go beyond the limits of most credit analysis

An allocation to global credit provides investors with higher yields than those on offer from cash and government bonds and diversification to complement equity exposures. We go the extra mile to navigate risks and opportunities in global markets. Ky Van Tang, Credit Research Co-lead, explains why our team of credit research analysts scrutinise ESG risks the hardest.

An active approach to managing risk through all market conditions  

20+ years

 For more than two decades, we have managed global credit portfolios through economic cycles and fluctuating market conditions. 

Broad coverage

 Our expertise extends across the full credit spectrum. We offer a full suite of solutions, including investment grade, mixed grade and a dedicated high yield capability.

Best-in-class ESG integration

 All holdings undergo comprehensive analysis to help minimise investment risk, including ESG risks facing individual issuers.

Why invest with us in global credit?

We offer a range of actively managed strategies, as well as solutions for clients favouring a ‘buy and maintain’ approach. All utilise a proven investment process, incorporating disciplined in-house credit analysis and aiming to exploit relative value opportunities in global markets. We also have a proven ability to tailor bespoke, segregated mandates according to client requirements and have the local expertise to manage specialised regional portfolios. 

  • A proven and differentiated investment philosophy: Since credit market returns are asymmetric, we focus on ‘avoiding the losers’ through rigorous credit analysis, combined with sophisticated portfolio construction focused on diversification. 

  • Consistent long-term performance track record: Favourable risk-adjusted returns generated over 3-5 year time horizons.

  • Multi-dimensional credit research: Credit research focuses on assessing credit risk and identifying deteriorating issuers. Our analysis considers a variety of risk dimensions, enabling significant breadth.

  • Best-in-class Environmental, Social and Governance (ESG) integration: We have a vigorous Environmental, Social and Governance (ESG) process that is built in at both the company and product level. More importantly, ESG risk factors are an important consideration in the assignment of credit ratings on individual issuers.

“We’re looking to construct well-diversified portfolios of global corporate bonds that can provide steady income over the full credit cycle.”

Tony Togher

Head of Short Term Investments and Global Credit

We’re obsessive about risk management

In our view, investing in credit is as much about risk management as it is about return management. Credit market returns are asymmetric; there is typically limited upside potential and risks are concentrated on the downside. We are value-based investors with an unrelenting focus on risk management. By completing thorough credit research, we aim to identify deteriorating issuers. Environmental, social, and governance (ESG) assessments form a critical component of the research process. 

In security selection and portfolio construction, we aim to combine the most compelling risk-adjusted opportunities into well diversified portfolios.

  • Our focus is on issuers where risks are evolving, as changes can influence performance outcomes over time. 
  • We have best-in-class ESG research capabilities and our responsible investment (RI) processes are highly rated by global consultants. 
  • Specialist analysts share information around the globe to support a global suite of credit products.
  • Internal Credit Ratings directly influence portfolio construction decisions, underlining the importance of disciplined research. 
“ESG issues have a direct impact on an issuer's risk and therefore its probability of default. If a company manages ESG risks poorly, we don’t have confidence that other risks are being well managed.”

Ky Van Tang

Co-Head of Credit Research

Case study

General Electric – losing power?

US-based conglomerate General Electric (GE) has been beset by questionable corporate governance practices, lack of transparency and a string of unexpected strategic announcements. The broader market appears to have extended GE some goodwill due to its ‘brand name’ rather than assessing the firm on underlying facts, though this appears to be changing gradually. 

Our ESG risk rating on the company was initially raised in late 2017 and again in late 2018. Consequently, internal credit ratings have been consistently below the external ratings agencies. Our assessment on the credit and ESG risks, along with uncertainty on the company’s strategy and future credit profile prompted us to sell GE bonds in our global credit portfolios. 

Risk assessment:

- GE reduced the size of its Board amid significant operating deterioration, underlining the governance risks present. There have been repeated changes in leadership, which disrupt the business and can result in continual shifts in company strategy. Repeated negative surprises and management changes are red flags in terms of internal controls and suggest a lack of cohesion in strategy. Accordingly it is difficult to envisage what the company might look like in the medium term. 

- Our greatest concern is that cash flow will be insufficient to service the company’s enormous debt load. At this stage we are unconvinced that the firm’s current plan to retain the Power, Renewable Energy and Aviation subsidiaries – along with parts of GE Capital – will remain intact. This is a serious concern from a credit perspective as underlying businesses face serious headwinds and as management priorities are spread thinly. Further, GE Capital’s debt is now guaranteed by the parent. We think GE Capital could be breakeven at best and could require significant capital contributions in the near term. 

 

For illustration purposes only. Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors portfolios at a certain point in time, and the holdings may change over time.

Responsible Investment

Our corporate RI strategy is based upon three strategic pillars of quality, stewardship and engagement.

For Global Credit, the Environmental, Social and Governance (ESG) assessment most often comes through its impact on the internal credit rating (ICR) provided by the Credit Analysts via our Credit Research process.

Learn more about the Global Credit team's approach to Responsible Investment

“Our credit analysts are tasked with monitoring the credit risk profile of individual borrowers. The aim is to remove deteriorating issuers from portfolios before default risk starts to affect valuations.”

Mike Arnold

Co-Head of Credit Research

Meet the Investment team

Tony Togher

Head of Fixed Income, Short Term Investments and Global Credit

Ky Van Tang

Co-Lead, Credit Research

Mike Arnold

Co-Lead, Credit Research

Andrew Woerner

Senior Credit Analyst

Want to know more?

Contact your Financial Adviser