Monthly Update: Corporate (Bank) Loan Strategy 

 

Follow the herd or invest in out of favour assets, like Senior Loans?


The yield advantage offered in loans over traditional high yield is at its widest level since 2000.

 

 

Spread Movement US Fixed Income, Loan spread tightening has lagged

 

 

Pacific Asset Management Corporate (Bank) Loan Strategy
As per Q4, 2019 the Pacific Asset Management (PAM) Corporate (Bank) Loan strategy has an annualized outperformance of 1.3% over the CS Leverage Loan index, outperforming 89% of peers according to eVestment since inception in 2007. The Pacific Asset Management Corporate (Bank) Loan strategy is managing a liquid, Broadly Syndicated Loan portfolio based on three core principles: Fundamental Analysis, a Focus on Larger Issuers and Capital Preservation. The team has successfully employed the same investment strategy since January 2007 with a substantial lower standard deviation and down-market capture compared to the benchmark and most peers. PAM manages about USD 12.1 billion in fixed income of which USD 4.35 billion in Bank Loan Strategies. A daily liquid QIAIF fund is available: ISIN:IE00BMQX0X92. There are USD shares and Euro hedged shares available.

We have replicated this 5 Morningstar US mutual 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


Meet with Pacific Asset Management at your office:

May 18 Denmark
May 19 morning Finland
May 19 afternoon Sweden
May 20 Switzerland
May 21 morning Norway 
May 21 afternoon Netherlands

Please send an email to candoris@candoris.nl
or reply to this email.


Lead Portfolio manager JP Leasure


 

Bio: JP Leasure of Pacific Asset Management

 

 

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 (4.35 billion today).
 

 

Pacific Asset Management Senior Loan strategy: Superior returns, less risk and high alpha 2007-2019


Pacific Asset Management Senior Loan strategy: Low Downside Capture, Upside Capture about 100 2007-2019

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

 

 

 

Max drawdown US Loans vs US HY

 

 

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.


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, 30-9-2019).

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.

 

 

 

Pacific Asset Management Corporate (Bank) Loan Strategy

Composite Data

Fund Facts

 

 

 

 

 

Alpha

1.75%

 

ISIN 

IE00BMQX0X92

Beta

0.88

 

Benchmark

CS Leveraged Loan

Std Dev

6.36%

 

Currency

USD

UMC

100.87%

 

 

 

DMC

78.15%

 

Asset Class

Fixed Income

Information Ratio

0.54

 

Type

Senior Loans

Tracking Error

2.35%

 

Region

United States

Sharpe Ratio

0.74

 

Dividend policy

Accumulating

 

 

as of 31-12-2019

 

 

Data as of 31-1-2020

 

 

 

 

 

 

 

 

 

 

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%. 

 

 

* Performances are annualised. The latest data is still preliminary. Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate.. "This email is intended to be reviewed by only the intended recipient and may contain information that is privileged and/or confidential. If you are not the intended recipient, you are hereby notified that any review, use, dissemination, disclosure or copying of this email and its attachments, if any, is strictly prohibited. If you have received this email in error, please immediately notify the sender by return email and delete this email from your system."