Monthly Strategy Update: SiM US HIGH YIELD with ESG overlay

Links to the other Candoris Monthlies:
DSM US, Global, EME Growth         Coho ESG US LC        PAM Senior Loans        VanEck EME       VanEck EMD

 

Good morning *|FNAME|*,

In August the BofA ML US High Yield Master II index (EUR Hedged) returned 0.14% while the SiM US HY UCITS fund (with ESG overlay) returned 0.39%, underperforming the benchmark with 53bps (Net of fees and EUR Hedged). 

The Strategic income Management (SiM) US High Yield strategy has an annualized outperformance of 1.47% over the BofAML US High Yield index, ranking 2nd percentile since inception in 2011 (Evestment as of 31-7-2019).

 

Meet the lead portfolio manager of the SiM US HY strategy: 


September 23rd in Copenhagen


September 24th in Helsinki (morning)


September 24th in Stockholm (afternoon)

September 25th in the Netherlands
 

September 26th in Vienna
 

 

To set up a meeting with Gary if not done already: E-mail: florian.bankeman@candoris.nl



HY investing: High Return/Low Risk
Please find the full presentation here




 

 

Current characteristics of the fund vs the benchmark:


Data above is as of September 6th

 

 

SiM's Default Rate compared to the benchmark is significantly lower, due to its stock selection.

 

 

 

Portfolio commentary
The fund underperformed the BAML HY Index by 53 bps during the month of August with Issuer Selection detracting 22 bps.  In regard to Sector Allocation, an overweight positioning in both Consumer Goods and Transportation positively contributed 12 & 10 bps respectivelyOur overweight allocation to transportation benefited from continued strength in shipping rates that seasonally trend higher in the 2H of the calendar year. Our overweight allocation in Consumer Goods benefited from continued speculation regarding the swine flu in China and the effect on the overall protein supply globally. Our overweight positioning in Energy detracted 16 bps from performance during the monthDespite US oil inventories continuing to draw at the quickest pace on record since June of this summer, benchmark prices were down 2.5% for the month and the sector was the worst performer in the High Yield Index.  We continue to see the oil market tightening and believe it will be reflected in higher asset prices in the imminent future.  

Issuer selection within Utilities & Energy detracted 28 & 13 bps respectively for the monthWithin Utility, Stoneway Capital detracted 28 bps during the monthStoneway is a power utility in Buenos Aires, an area susceptible to brown-out/black-outs.  The bonds suffered due to election results that greatly increased the odds of a less market friendly regime taking power.   Our underperformance in Energy is the result of our overweighting in the Exploration & Production sub-industry, which has a higher beta to oil.  California Resources Corporation, our highest beta energy company, detracted 21 bps during the month

Click
here for the replay of the latest SiM HY webinar.

High Yield Fund Flows
High Yield bond funds had monthly outflows of -$4.5bln (-$2.2bln from ETFs) in August, the second month in 2019 with outflowsThis brings the year to date inflows to $11.1bln ($8.3bln from ETFs) compared to inflows of -23.7bln YTD through August in 2018.

Overview of the Market
The 2-Year and 10-Year Treasuries ended the month at yields of 1.53% and 1.51%, down 39 and 51 bps, respectively.  The ICE BofAML High Yield Index ended the month with an YtW of 5.80% and OAS of 408, down 20 bps and up 15 bps, respectively

August performance rankings of asset classes were: 5-year Treasuries 2.26, 3-5 Year Investment Grade 1.39%, High Yield Bonds 0.39%, Leveraged Loans -0.22%, S&P 500 -1.58%, and Emerging Market HY Corporates -1.61%.
In August, High Yield double-B rated bonds had the best return at 1.17%, single-B rated bonds at 0.20%, and CCC & below-rated rated bonds the worst at -2.26%.  

In the ICE BofAML High Yield Index the sectors with the best total returns were: Banking 1.81%, Insurance 1.45%, and Media 1.38%.  The worst performing sectors were:  Energy -2.60%, Automotive -0.05%, and Retail 0.47%.

 

 

 

 

SiM's investment approach has proved to be effective for 2 decades. Before starting their own firm, the same team managed a US HY portfolio from 1998 till 2009 outperforming 96% of peersSince inception in 2011 the SIM US HY strategy again outperforms 97% of all US HY peers in eVestment with this unique very different investment approach. Up market capture between March 1, 2011 and 31-7-2019 is 104.11 Down market capture is 82.97%.

 

 

Performance

 

SiM has proven to provide superior returns with similar risk compared to the benchmark and other strategies (track record since inception in 2011)



The Strategic income Management (SiM) US High Yield strategy is a concentrated strategy focused on long term investing. A core portfolio is complemented with out of favor sectors and small cap issuer allocations. The team has successfully employed the same strategy together for 19 years and manages a top performing USD 1.5 Billion US mutual fund. A daily liquid UCITS fund is available.

 

SiM Documentation

 

 

 








The investment philosophy is based on the premise that a core portfolio, built around long-term trends, and within the appropriate industries will outperform over a cycle and provide stability and downside protection. Additional alpha is added by investing in small cap bond issuers, out-of-favor industries, and non-traditional high-yield instruments. Focus is long-term with a low turnover.

 

 

SiM US High Yield Composite data                                               SiM US High Yield Fund Facts
 

Alpha

1.84

 

 

 

ISIN

IE00BF1XKR94

Beta

0.92

 

 

 

Benchmark

BofA ML US HY Master II

Std Dev

5.63

 

 

 

Currency

EUR

UMC

104.11

 

 

 

Bloomberg ticker

SIMHEIC:ID

DMC

82.97

 

 

 

Asset Class

Fixed Income

Information Ratio

0.81

 

 

 

Type

High Yield

Tracking Error

1.81

 

 

 

Region

United States

Sharpe Ratio

1.28

 

 

 

Dividend policy

Accumulating


Data as of 31-07-2019 source eVestment

 

About SiM
Strategic income Management (SiM) is fully dedicated to US High Yield investing. Their successful strategy has a core portfolio built around long-term trends that provides stability and downside protection. Over the full cycle the core portfolio outperforms, additional alpha is created by investing in out-of-favour sectors that are on a long term path of recovery; small cap bond issuers and non-traditional high-yield instruments

Since inception in 2011 the SIM US HY strategy ranks 3rd percentile. Before starting their own firm, the same team managed a US HY portfolio from 1998 till 2009.

 

SiM is unique versus peers, having an up market capture above 100 and a downmarket capture of 82

 


 

 

SiM provides higher returns vs peers, while having the same amount of risk of the Benchmark

 

 

SiM Unique Investment Approach

 

 

 

More about SIM
-SIM is based in Seattle and manages about USD 1.5 Billion in US High Yield
- It is an employee owned boutique, no staff turnover, full commitment and dedication
- SIM manages 1 strategy, so pure focus
- The team is together for 25 years. Initially at Principal investors/Edge and since 2011 at their own firm
- Excellent track record: During the 10 years at Principal the team scored top 4% out of all US High Yield managers. 
- The team is 3rd since inception and 10th on a 5 year basis.
- Different approach to investing than most HY managers
- Commitment to Europe, recently launched UCITS fund, 2 yearly trips to Europe, long term partnership with Candoris.

 

 

 

* 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."
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