Vontobel Fund - Euro Corporate Bond

Key features

• Consistency: The asset class of European corporate bonds has proven stable over different cycles.
• Steady income: Coupons offer a steady source of return.
• Diversification: A corporate bond portfolio well diversified across industries, structures, and issuers.
• Focus: Selecting investment-grade corporate bonds we consider offering the best value and issuers whose social characteristics we deem advantageous.

Our investment process

Our investment process begins with a top-down review of the European corporate-bond market, where we look at the development of key macro- and microeconomic data, considering technicals, such as new issuance and asset flows into or out of the asset class.

Then, we zoom in and filter by both industry scores/attractiveness and credit metrics to identify potential investable corporate-bond ideas. Our ESG risk concept excludes issuers that derive a certain percentage of their revenues from products/activities referenced under “exclusion approach” in the fund’s legal documentation – such as weapons, thermal coal, or tobacco, those we deem the most controversial, those that are in violation of certain global norms and standards the fund aims to promote, and those not aligned with the United Nations Global Compact Principles.

This is followed by a thorough bottom-up analysis of the names that pass our filters, resulting in a fundamental company view that also considers ESG characteristics, with a special eye on social ones. By bringing this together with our overall market valuation, we come to a buy/hold/sell decision on each issuer.

Finally, we construct our portfolio based on our considerations of the aspects sector, issuer, and ESG, among others. The fund mainly invests  in investment-grade corporate bonds rated from A+ to BBB-.  When we rate investment risks as low, we may add a limited portion of subordinated instruments and issuers rated BB. When we find more caution appropriate, we may instead add a limited portion of liquid corporate or government bonds rated from AAA to AA-.

A robust risk-management setup, with control and oversight independent of the primary risk owners, provides a solid cover across our entire investment process.
 

Investment opportunity – excess returns through the cycle

Historically, investment-grade corporate bonds delivered positive returns even in recessionary and zero-growth environments, with their excess returns being less sensitive to the economic cycle. Usually, investment-grade corporate bonds with ratings from A+ to BBB- offer higher yields than top-rated government bonds, while their credit fundamentals are nevertheless solid.

We seek to generate alpha from our selection of corporate bonds with two core drivers, as illustrated in more detail below.
 

Close to our heart is the notion that a more sustainable future starts with appropriate social norms, not least the empowerment of people. Our ESG approach adopts a screening methodology based on pre-defined empowerment indicators, such as diversity oversight by a company’s management and by specific programs, the percentage of women in total workforce, violations of the International Labour Organization (ILO)’s Core Conventions, and the percentage of employees that receive training. We favor companies that do well in this respect or are on their way to do so, according to our bottom-up analyses. 

Investment beliefs

The European corporate-bond market is slow to react to new trends, and so, presents investment opportunities across industries, structures, and issuers – an ideal ground for active corporate-bond selectors. In addition, the asset class is broad, offering good risk diversification potential.