Onderwerp:                            FW: Dear Rick, PAM Senior Loan monthly update

 

 

 

 

Monthly Strategy Update: PAM Senior Loans
Links to the other Candoris Monthlies:
DSM US, Global, EME Growth         Coho ESG US LC        VanEck EMD        VanEck EME       SIM US High Yield

 

 Good morning Rick,
 

Pacific Asset Management will be hosting a webinar (TODAY) the 14th of May at 16:00 CET, click here to sign up.


April was a good month for US Senior Loans. The PAM Senior Loan fund gained 1.59% and the Credit Suisse Leveraged Loan benchmark gained 1.59% (Gross of fees in USD). 

YTD the PAM Senior Loan Fund has an outperformance of 25 bps gross of fees in USD (5.67% vs 5.42%). 

Since inception in 2007 the PAM SL strategy's GIPS compliant track record outperforms the benchmark with ~1.3% annualized, outperforming most peers with a lower standard deviation and much lower down market capture (79.01%)(eVestment as of 31-3-2019). 

Yes, leverage levels of corporate loans have been steadily increasing into and thru the 1st quarter of 2019.Additionally, adjustments to EBITDA continue to be aggressive and more frequent.

Therefore Credit selection and due diligence on each loan in the portfolio is more paramount than ever for loss avoidance and possible alpha generation.

A Dovish FED and continuous outflows make that spread tightening of US Loans is lagging other US Fixed Income classes.

This provides favorable relative value as the asset class has shown itself a diversifier to traditional fixed income. effective 4 yr yield in US Senior Loans is around 7% vs 6.43% for US HY at the end of Q1.See graph at the right and below.



Please subscribe to the US Senior Loan webinar of PAM in which they will also present their CLO capabilities >>>>



 





- Presentation PAM US Senior Loans


- PAM US Senior Loans versus peers











Pacific Asset Management 
will be hosting a webinar (TODAY) the 14th of May at 16:00 CET, click here to sign up.

 

 

 

 

Q1 commentary PAM:

Through 2018, the Federal Reserve continued its tightening path, via four rate increases, balance sheet reduction, and projecting two more hikes in 2019. By March of 2019, expectations now call for zero rate hikes this year (with a greater chance of a rate cut than a hike per market projections), a reduction and then pause in the balance sheet run-off, and future projections of only 1 hike in the next 18 months. What spurred this change in action and outlook? 


Click here for the complete commentary and the answers

 

PAM invests selective in so called Broadly Syndicated Loans (BSL). These are larger more liquid Loans. As PAM is selective, they invest in 80-150 issuers. PAM also caps their maximum AUM in the strategy at 8 billion USD (3.3 billion today).

We have replicated this fund in an Irish vehicle investable for European investors with a management fee of just 45 bps: 
http://www.pacificfunds.com/investor/mutual-funds/fixed-income-funds/floating-rate-income.html

Smaller issue sized loans have outperformed the Broadly Syndicated Loans over the last years. In times of stress these Smaller issue sized loans are not always priced correctly and a sell can find a much lower bid than expected. PAM is comfortable not to be in this space also given the position in the cycle that we are in. It might be a smart thing to move your US Loan investment from the small and mid issue sized loans to the Broadly Syndicated more liquid area.

 

 

Performance:

YTD the PAM Senior Loan Fund has an outperformance of 25 bps gross of fees in USD (5.67% vs 5.42%). 
Since inception in 2007 the PAM SL strategy's GIPS compliant track record outperforms the benchmark with ~1.3% annualized, outperforming most peers with a lower standard deviation and much lower down market capture (79.01%)(eVestment as of 31-3-2019). 


 

Pacific Asset Management Senior Loan strategy: Superior returns, less risk and a high alpha



High yield versus Loans

  • There has been a substantial narrowing valuation gap between the two asset classes.
  • The technicals supporting the loan asset class have become more favorable in recent months.
  • There is significant attractiveness, on a relative basis, to favor loans over high yield on a go forward basis.
  • On a risk-adjusted basis, one could prefer loans versus high yield.

Why Bank Loans?

  • Senior and secured
  • Competitive yield based on floating interest rates means no duration
  • Low correlation with most major asset classes
  • Low default rate due to shorter average life.
  • Higher recoveries generally than other asset classes
     
  • Loans act as an interest rate hedge. 

During periods of rising rates, loans have historically performed well compared to other fixed income asset classes.



Source: St. Louise Federal Reserve, Credit Suisse, Barclays, as of 12/31/2016

More about PAM  

Pacific Asset Management differentiates itself through the following Investment Approach:
Selective – Credit selection, with portfolio holdings ranging from 100 – 150 names.
Large Issuers – Bank loan facilities of somewhat larger companies, typically with an EBITDA of greater than $100 million.
Liquid – Names with daily liquidity are preferred.  
Lower Volatility Through Low Defaults – Since inception, the strategy had only 2 issuer defaults.
 
Candoris and PAM have set up a vehicle for European investors with daily liquidity.

- Presentation PAM US Senior Loans

- PAM US Senior Loans versus peers
 

 

 

Max drawdown US Loans vs US HY

 

 

PAM holds typically 5 or 6 names of the top 30 most held US Loans, they always hold a portfolio that is more liquid than the benchmark and often have a lower yield. Being able to be selective and change positions/trade makes that the strategy keeps up with the benchmark in strong market environments. During weaker periods the safer more liquid portfolio outperforms and allows PAM to move out of holdings if required. 

Since inception in 2007 the strategy has an up market capture just over 100%, the down market capture is 79%, with a Beta of 0.88. Despite the long bull market, PAM outperforms the CS LL index with 1.3% annualized before fees, looking at risk adjusted alpha they rank top percentile (eVestment, 31-3-2019).

In recent months equities and High Yield have corrected, US Senior Loans are relative steady as can be expected from the relatively low vol asset class. Yes, covenant lite is there to stay and leverage has increased, but so have yields. 

Please let us know in case you like to have a broad discussion with the team in Newport beach about the asset class, outlook and PAM specific approach to investing.

 

A daily liquid alternative fund is available for European investors in Ireland. 


The PAM Senior Loan fund is one of the best performing, most liquid and price competitive strategies within the Senior Loan universe.


 Separate accounts are possible as of 50 mln USD.



PAM is selective, 80-150 issuers, AUM in Loans limited to USD 8 billion 


45 bps is the management fee charged in the Irish fund 

 

 

 

 

PAM Senior Loans Composite data                                               PAM Senior Loans Fund Facts

Alpha

1.64

 

 

 

ISIN

IE00BMQX0X92

Beta

0.88

 

 

 

Benchmark

CS Leveraged Loan

Std Dev

6.53

 

 

 

Currency

USD

UMC

100.91

 

 

 

 

 

DMC

79.01

 

 

 

Asset Class

Fixed Income

Information Ratio

0.53

 

 

 

Type

Senior Loans

Tracking Error

2.41

 

 

 

Region

United States

Sharpe Ratio

0.72

 

 

 

Dividend policy

Accumulating

 

Data as of 31-3-2019 source eVestment

 

Why Pacific Asset Management (PAM)?

The strategy of PAM outperforms most of its peers since inception in 2007 with a much lower standard deviation and downmarket capture. PAM believes that their size and flexibility allows them to be well positioned. An Irish investment vehicle with US$ and Euro hedges shares is available for European investors. The Senior Loan Strategy of PAM has a 10+ year track record with an annualised outperformance over the benchmark (CSLL) of about 1.3%. 

 

PAM has a much lower Downside Market Capture

 

 

 

Links to updated presentation and other documentation

Click to receive the information

- Presentation PAM US Senior Loans

- PAM US Senior Loans versus peers

 

 

 

More about PAM
Pacific Asset Management differentiates itself through the following Investment Approach:

 
Selective – Credit selection, with portfolio holdings ranging from 80 – 150 names.
Large Issuers – Bank loan facilities of somewhat larger companies, typically with an EBITDA of greater than $100 million.
Liquid – Names with daily liquidity are preferred.  
Lower Volatility Through Low Defaults – Since inception, the strategy had only 2 issuer defaults.
 
Pacific Asset Management manages Senior Loans as of January 2007 and has outperformed most of its peers since inception (eVestment) with a lower volatility. Managing (only) US$ 4.1 billion (31-3-2019) in Senior Loans allows them more freedom than many competitors to be selective and implement the calls of analysts. This pays off during corrections in the market (lower down market capture).

Candoris and PAM have set up a vehicle for European investors with daily liquidity.