HEAD-TO-HEAD: Aviva Investors versus Axa IM

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INVESTMENT APPROACH

Both strategies follow a fundamental bottom-up approach and have a global focus; but there are some notable differences in terms of their investment process and portfolio positioning, according to Gkeka.

The managers of the Axa Global High Yield Fund adopt a barbell approach combining weaker (B to CCC) credits with short-maturity bonds.

“The strategy uses a buy-and-hold approach aiming to generate returns by receiving income rather than relying on a potential rise in bond prices,” said Gkeka.

The barbell approach is currently reflected in a significant overweight allocation to credits with a B and CCC or under rating compared to its benchmark, and an underweight duration of over one year compared to its index.

“Geographic allocation and sector exposure are secondary drivers, with the latter generally reflecting the team’s preference for companies with stable business models and predictable cash flows,” said Gkeka.

“The focus is on companies with improving credit trends, stable business models, and predictable cash flows, leading typically to an underweight allocation in highly cyclical sectors,” she said.

For example, as of end February the strategy’s largest sector underweightings were in banking, energy and automotive. The portfolio is diversified and typically includes 250-350 issuers.

“In contrast to some competitors, the approach typically restricts itself to plain-vanilla cash bonds and does not use derivatives, with the exception of currency hedges,” said Gkeka.

The Aviva Global High Yield Bond is a conservative offering within the global high yield bond universe, according to Gkeka.

“The strategy relies on security selection as its key return driver, but top-down decisions also play a significant role in shaping the portfolio and allocations across different credit-quality tiers,” she said.

Analysts take into consideration fundamental factors, valuations and technicals when making investment recommendations for inclusion within the portfolio.

“Structurally, the approach avoids emerging markets corporate issuers and commercial mortgage-backed securities, and generally treads lightly among CCC rated bonds,” said Gkeka.

Currently the managers have a preference for B-rated credits and holds underweight allocations to BB- and CCC-rated bonds.

On the sector side, the largest overweights are in other financial institutions and consumer non-cyclicals, while the biggest underweights are in capital goods and consumer cyclicals.

“The portfolio is more concentrated than the Axa fund, and typically holds 150-250 issuers,” said Gkeka.

Fund characteristics:

Source: Morningstar

Country allocation:

Source: Factsheets, Morningstar

Top 10 holdings:

Source: Fund factsheets, 28 Feb 2021

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