HEAD-TO-HEAD: Blackrock vs Bluebay

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Both the Blackrock and the Bluebay funds belong to Morningstar’s euro corporate bond category. The managers of both funds combine a top-down view on the euro credit market with bottom-up selection of bonds, which is the standard approach of fund managers in the investment-grade space.

However, there are differences between the two funds.

The Blackrock fund has an emphasis on diversification, which means having a broader base of positions, instead of having large returns from a small number of holdings, Dash said.

The fund invests in around 350 holdings, including small exposures to high-yield, government, and non-euro bonds.

Blackrock’s predominantly value-orientated strategy makes it stand out among peers.

“Blackrock implements a more traditional fixed-income strategy in the fund, valuing duration, beta, and currency plays, compared to the Bluebay fund,” he added. “The Blackrock fund also seeks to build a portfolio without a single dominant risk factor.”

On the flipside, Bluebay manages the portfolio with flexibility, which is facilitated by the ability to short-sell and use derivatives.

“Because of the firm’s expertise in managing hedge funds, they are comfortable in using derivatives, such as index credit default swaps or interest rate futures and swaps,” he said.

The Bluebay fund team screens the universe of 2000 issuers using quantitative metrics, such as yield, credit quality and liquidity to shortlist 200 names for further analysis.

The team of analysts would also recommend short-sell transactions for the portfolio, according to Dash. The fund invests 10% of assets in single-name credit default swaps.

“The Bluebay team has a more aggressive approach, compared to Blackrock,” he said. The reason for that is although Blackrock uses derivatives in the fund for liquidity, it does not take short positions on the bonds.”

The manager of Bluebay tends to hold 10-20% of the fund’s assets in German government bonds, aiming to add liquidity to the portfolio.

The Bluebay fund deviates from its benchmark in terms of duration. The fund sees duration as the alpha driver of the fund, according to Dash. The bond duration of the Bluebay fund is 4.3 years while that of Blackrock is 4.98 years. The latter is closer to the peer average of 5.2 years.

Neither fund has a rigid return target, but the Bluebay fund aims to beat its index, the MarkitiBoxx EUR Corporate Index, by 1.5% before fees. The Blackrock fund is benchmarked against the BofAML EMU Corporate Bond Index, but does not have a performance target.

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