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Euro credit

Our euro credit strategies aim to deliver attractive long-term risk-adjusted returns through rigorous issuer selection, our experience in exploiting mispriced risks and a sophisticated approach to risk management.

See full list of fixed income funds.

Our philosophy

We believe that European fixed income markets often misprice underlying risks. To exploit these inefficiencies, multiple uncorrelated sources of alpha can be combined to aim for and maximise outperformance. We believe that the opportunity set lies in two major sources of alpha.

  • We seek to capitalise on asymmetric assessments of credit fundamentals and risk premiums (due to investment constraints, lack of research…)
  • We look to exploit curve distortions and inconsistencies between the shape and level of yield curves and economic and financial factors

Our process

Our investment process is mainly bottom-up with a top-down component, enabling us to be reactive and adjust beta positions to reflect our economic expectations. However, as markets are not always directional, our process also seeks to add alpha through relative value strategies.

  • Disciplined and active management, backed by proprietary research
  • Independent management of each strategy to efficiently capitalise on our managers’ specialisations
  • Rigorous risk budgeting approach to combine the individual strategies whilst optimising returns

HSBC strengths

  • A long history in Euro credit management dating back to 1968
  • Credit strategies that cover the full range of asset classes: government bond, corporate bond, covered bond, subordinated debt, hybrid bond, CDS
  • An investment staff that has an average of 19 years industry experience and have been through several market cycles and crises together, an important attribute especially in times of high volatility and uncertainty

Euro Credit strategy

Our Euro Credit strategy invests primarily in euro-denominated corporate bonds with a minimum credit rating of Baa3/BBB-. The strategy has seen a long and compelling track record (since 1999) through various market cycles.

Exploiting inconsistencies between credit fundamentals and risk premiums in euro investment grade debt.

  • Opportunistic and flexible portfolio management. The portfolio manager can allocate up to 25% to lower-risk assets (sovereigns, sub-sovereigns and cash) or up to 10% in euro high yield assets. Portfolio beta and duration are managed to reflect economic and credit cycle expectations and to hedge (or expose) the portfolio to potential rate hikes (or falls).
  • Bottom-up portfolio construction. The portfolio includes 90-150 issues based on the fundamental research that is captured and constantly updated on our global credit research platform.
  • Focus on fundamentals. Intensive credit research is critical to delivering strong and consistent performance. We evaluate "best opportunities" based on credit quality and relative value considerations.

Euro High Yield strategy

The Euro High Yield strategy invests primarily in high yield (BB and B-rated) corporate bonds and may provide some more opportunistic exposure to investment grade (IG) or CCC-rated bonds. The strategy's track record (since 1999) has shown resilience and consistency through various market cycles. The strategy is appropriate for investors seeking a conservative approach to investing in euro high yield.  

Careful issuer selection: the primary driver of performance.

  • Opportunistic yet defensive. The portfolio tends to favour large issuers with strategic positions in their respective industries. In certain market conditions, it can also invest in IG credit with yields substantially similar to high yield (HY) bonds, helping solidify the credit profile of the portfolio. Finally, the portfolio may invest (up to 10%) in non-euro-denominated bonds to capture further attractive risk-adjusted opportunities.
  • Focus on fundamentals. Intensive fundamental analysis is the main driver of consistent strong performance. The quality of our issuer selection is demonstrated by the extremely low level of distressed sales (0.3% of bonds sold below 40% of par) and the absence of any default in the portfolio since 2003.
  • Benchmark aware, but not benchmark driven. The portfolio invests in segments of HY where risk/return profiles are most attractive; it can also invest in bonds that are excluded from the benchmark. Guided by the insights of our team of 40+ global credit research analysts, the portfolio manager has flexibility: to avoid less attractive countries and sectors and to allocate to IG and non-euro-denominated debt as well as contingent convertibles.

Euro Credit Total Return strategy

The Euro Credit Total Return strategy is designed to generate attractive returns with minimal volatility over the long-term and in various credit cycles and market conditions. The total return approach aims to deliver better long term Sharpe ratios than the reference asset class.

An unconstrained portfolio seeking to exploit market opportunities while mitigating volatility.

  • Diversified exposure to a broad swath of euro fixed income markets and instruments. Allocation guidelines are highly flexible: 0% to 100% exposure to euro investment grade (IG) credit, 0% to 80% exposure to lower-risk assets (such as government bonds and cash) and 0% to 50% exposure to euro high yield (HY). The strategy can take advantage of market contexts and shifts by dynamically managing portfolio beta and duration and with derivatives for efficient access to opportunities and/or for hedging exposures.
  • Bottom-up portfolio construction. The portfolio is built from 90-150 bonds selected based on the exhaustive credit research and analysis that is shared through our global credit platform.
  • Total return approach. The portfolio allocates dynamically to the most attractive sectors in its broad investment universe, and it avoids industries and markets where risk/return profiles are inadequate. The strategy also aims to mitigate drawdowns through flexible cash limits. The portfolio can function as a stand-alone investment or as a diversification component within a more benchmark-oriented fixed income portfolio.
Risk Warning
The value of investments may go down as well as up and you may not get back the amount originally invested. Fixed income is subject to credit and interest rate risk. Investments in high yield securities (commonly referred to as “junk bonds”) are often considered speculative investments and have significantly higher credit risk than investment grade securities. The prices of high yield securities, which may be less liquid than higher rated securities, may be more volatile and more vulnerable to adverse market, economic or political conditions. Derivatives can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on performance.