average rating
risks.
The following risks may be materially relevant but may not always be adequately captured by the summary risk indicator and may cause additional loss: Credit risk, Liquidity risk and Concentration risk.
BB +
$200 bn
investment universe
article 8
SFDR classification
philosophy.
why invest?
opportunity in
overreaction
credit’s sweet spot
through the cycle returns
favourable risk-adjusted returns
perfect timing?
universe.
opportunity in overreaction.
Our Fallen Angels Recovery strategy looks to exploit ‘valuation overreaction’ to downgrades.
Silvercrest research shows that upon downgrade from investment grade, fallen-angel spreads are typically significantly higher than BB rated peers, and offer better risk-adjusted returns that all other ratings categories including IG, BBB, BB and HY. Price recovery tends to occur within a two-year period, not just in market crises, but also in more regular market environments.
Source : Silvercrest March 2023. For illustrative purposes only. Past performance is not a guarantee of future results. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.
credit’s sweet spot.
We see far better risk-adjusted return characteristics for long-term outperformance and income potential within BB ratings bracket – more so than any other rating category.
Historically, BB credit outperforms all ratings buckets including the lower rated B buckets from the perspective of credit returns - almost three times larger than its nearest investment-grade rating bucket (BBB).
BBs exhibit higher spread returns than Bs, despite lower spreads. This is thanks to the substantially lower default risk in BBs versus Bs and, hence, reduced default-linked losses. The ultimate outcome is substantially higher excess returns relative to spread levels, and therefore risk levels.
While a multitude of factors contribute to the outperformance of BBs, both in absolute returns and relative to their spreads, a dominant driver is the outperformance of fallen angels.
Source : Silvercrest March 2023. Past performance is not a reliable indicator of future returns
through the cycle.
In searching for higher potential returns, the fund combines LOIM’s leading market research and analysis, in-depth fundamental credit analysis, systematic capabilities and crossover experience. Sustainability is also fully embedded in our investment decisions.
The result – a convex high-yield strategy which tends to outperform other HY in a recovery but fall less in a negative credit market or during more challenging market cycles.
favourable risk-adjusted returns.
Fallen angels tend to outperform all ratings-based indices, with significant outperformance potential in a recovery but still with outperformance potential in benign markets.
Our research shows a similar average yield for fallen angels when compared with high yield, but with better average returns reflecting price over-reaction on downgrade and the subsequent pull to par effect.
Fallen angels have also demonstrated better risk-adjusted returns.
Source : Silvercrest March 2023. Past performance is not a guarantee of future results. Awards and ratings may vary without notice. Yields are subject to change and can vary over time.
perfect timing?
Fundamentals are widely expected to catch up with the deterioration in sentiment seen this year, creating strong potential for greater supply of fallen angels.
An uptick in fallen angels supply usually leads to strong future credit performance in both absolute and relative terms and greater alpha potential. Fundamental analysis to separate fallen angels from falling knives will remain critical.
In 2022, we saw a strong repricing of fixed income assets including fallen angels. Valuations are now starting to look compelling. While we believe markets might remain volatile, we think we have seen the larger part of the move.
investment team.
 |
Ashton Parker |
 |
Jérôme Collet Senior Portfolio Manager Head of Beta Management |
 |
Anando Maitra |
 |
Denise Yung |
more about our funds.
Share class name ISIN CurrencyDateNAV
Past performance is not a guarantee of future results. If the funds are denominated in a currency other than that in which the majority of the investor's assets are held, the investor should be aware that changes in rates of exchange may affect the value of the funds' underlying assets. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
