Manager review
Carl Whitbeck became the lead manager of the Axa fund in June 2011 after three managers of the Axa high yield team left to set up their own boutique. Robert Houle also joined at the same time as the co-manager.
Whitbeck has about 15 years of experience in the high yield market. He has served in several roles such as credit analyst, trader and backup manager.
“His track record is shorter than those of other managers we cover, but we are reassured by the fact that Whitbeck and the four managers who assist him have been working together for nearly 10 years.
“This team also has eight credit analysts and its workload is reasonable, as it manages only three fairly similar strategies,” Dobrescu said.
The team is smaller than some competitors, she added, but every investment decision is debated by the whole team thanks to the compact size.
The Pimco fund has been run by Andrew Jessop since January 2010. Co-manager Hozef Arif was appointed in July this year. They are supported by a team of 50 credit analysts, Dobrescu noted.
Jessop was a manager of the Goldman Sachs High Yield Fund from 1997 to 2009 before joining Pimco in November 2009. He also oversees a team of 10 high-yield bond portfolio managers.
Arif has been at the firm since 2008.
One point to note is that the analyst team size shrank by eight from 2015-2016 in order to “rationalise its head count”, she said.
“This warrants watching, but we continue to have confidence in the firm’s overall credit re- search efforts and leadership.”
Fees
The latest ongoing charges (OCF) of the Axa fund (Class A Acc) are 1.44%, as of October 2016.
The OCF of the Pimco fund (Class E Acc) stands at 1.45% as of February this year, in line with the retail category median. But Dobrescu said given the fund size, the firm should cut the fees further to share its economies of scale with investors.
Conclusion
Both funds get a Morningstar Analyst Rating of Bronze.
Morningstar’s Analyst Rating is forward-looking analysis of a fund. Analysts assign the ratings on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, a Neutral rating, and a Negative rating.
A Gold, Silver, or Bronze rating means Morningstar analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years.
Although the funds hold the same rating, the Pimco fund focuses more on the BB rated paper. Even after the fund changed its benchmark and started to invest in CCCs, “if you look at the average overall credit rating, it is still higher [than the benchmark]. The implication is that this is a lower-risk proposition compared to peers.
“The fund’s higher-quality approach should minimise volatility over a full credit cycle relative to its high-yield bond peers that tend to take on more credit risk, but could lag during risk-on rallies,” she added.
By contrast, the Axa fund has historically had a fairly large allocation to CCC bonds, Dobrescu continued.
“This is a higher-risk approach, as its success depends on the team’s skill at picking the right issuers and avoiding defaults, which has been the case so far.”
