HEAD-TO-HEAD: Allianz GI versus Fidelity

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INVESTMENT APPROACH

Both the Allianz and Fidelity funds invest in hard currency (US dollar-denominated) Asian high yield credit, according to Ge.

Given that both products look at the same investment universe, they both have some similarities.

“A big portion of the universe is made out of real estate credits, so if you look at both of their portfolios, a huge chunk of their portfolios would be invested in real estate, and since a lot of these real estate players are from China, you would expect their portfolios to have China as their largest country allocation,” Ge said.

Both strategies also employ a bottom-up approach to investing.

“They try to generate alpha from the bottom-up, so they are credit selectors,” Ge said, adding that the funds use duration and currencies to a lesser extent to drive returns.

However, there are a number of differences between the two funds, particularly on the way they manage risk.

The Allianz fund is more concentrated, while the Fidelity product is more diversified, according to Ge.

The Allianz offering typically targets 100-130 issuers, while the Fidelity fund targets 100-150 issuers. In terms of their current bond holdings, the Allianz holds 161 bonds, while the Fidelity product holds 255.

Sector exposure is also more concentrated for the Allianz fund, Ge added. For example, around 66% of its portfolio as of the end of July was invested in real estate, versus the 42% allocation in the Fidelity fund.

“For us at Morningstar, concentration risk into a particular sector is something that we look out for,” Ge said.

Country allocation: Nearly 65% of its portfolio are in Chinese assets.

Source: Morningstar Direct. As of 30 July 2020.

Besides concentration at the security and sector level, the yield for both funds is also different.

“The Allianz fund seems to be more of a yield-chaser. Around 75% of their holdings are in bonds with coupons of 6% or higher, whereas when you look at the Fidelity offering, it’s around 50%,” Ge said.

The current yields of the Allianz and Fidelity funds are 8.03% and 7.54%, respectively, Morningstar Direct data shows.

Separately, Ge noted that the Allianz fund’s investment approach has undergone changes in recent years. Before 2018, the strategy was heavily invested in illiquid bonds. While the approach worked well before, it struggled in 2018 and thereafter as market liquidity dried up.

“They had to change the way they managed that,” Ge said, adding that the stronger focus on liquidity and risk management is “encouraging”.

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