Taking advantage of a low-yield environment and uncertainties related to COVID-19
Interest rates are at a historically low level and market volatility is higher than the historical average. There are still many uncertainties, mainly related to fears of a second wave of COVID-19. Despite such a volatile environment, our AXA WF Euro Credit Total Return fund, unconstrained by a benchmark, has proven its ability to take advantage of various opportunities across the entire euro credit universe, and generating a positive total return of 1.31% since the beginning of the year.*
*I EUR Acc share class as at 30/06/2020, net of fees
After the rapid acceleration of the virus outside China's borders, growth forecasts were revised downwards significantly, but the response of central banks was once again decisive, particularly in the United States. This led to price stabilisation in several fixed income buckets and finally an impressive recovery, including high-beta segments such as high yield. Indeed, central banks are providing massive credit support to the private sector and giving governments the fiscal flexibility needed to make the additional spending required to support incomes, employment and health services. These policies should provide support around economic and credit risks for some time. In the meantime, the underlying uncertainty remains elevated and investors must be vigilant both in their issuer selection and top down exposure.
A unique vehicle in a low-yield environment and uncertainties related to COVID-19
During this volatile period, our unconstrained* fund, AXA WF Euro Credit Total Return, has demonstrated its ability to take advantage of different opportunities in the full euro credit universe by outperforming its Morningstar peer group, EUR Flexible Bonds, and delivering a positive total return.
*The fund is unconstrained by a benchmark
- Exploiting the full euro credit universe with an extensive leeway on investment grade and high yield allocation (up to 50%)*
- Flexible management of duration risk (-2 to 6 years)
- High conviction positioning
- Investment grade quality portfolio (BBB)
- Combination of top-down management approach with tactical allocation across identified risk buckets and return drivers
Counterparty Risk: Risk of bankruptcy, insolvency, or payment or delivery failure of any of the Sub-Fund's counterparties, leading to a payment or delivery default.
Liquidity Risk: risk of low liquidity level in certain market conditions that might lead the Sub-Fund to face difficulties valuing, purchasing or selling all/part of its assets and resulting in potential impact on its net asset value.
Credit Risk: Risk that issuers of debt securities held in the Sub-Fund may default on their obligations or have their credit rating downgraded, resulting in a decrease in the Net Asset Value.
Impact of any techniques such as derivatives: Certain management strategies involve specific risks, such as liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.
The use of such strategies may also involve leverage, which may increase the effect of market movements on the Sub-Fund and may result in significant risk of losses.
Strong positioning versus the competitors
- 5 stars Morningstar ★ ★ ★ ★ ★ in EUR Flexible Bond category**
- Top-performing fund in EUR Flexible Bond category over 1 Year and 5 Years (based on I EUR share class)
- First-decile fund in EUR Flexible Bond category over 3 Years
- Higher YTD performance (-0.38% net of fees) versus its Morningstar peer group (-3.22%) as at end of May
- 17.25% (net) cumulative excess return against peer group since April 2015
- 28.38% fund max gain versus 11.80% for its Morningstar peer group since April 2015 (Max drawdown: -11.11% versus -9.12%)
A portfolio uncorrelated with credit and rates
Investor anticipation about the bond market can evolve quite abruptly. Our flexible approach allows us to have a lower beta than the market when we believe the valuation is not compensating for the risk. This flexible approach is implemented through our bond allocation model and via derivatives, the Fund is exclusively invested in public issuances.
Active Investment Philosophy
We have been quite active in 2020 year-to-date, beginning the period with a limited amount of risk, especially in January and February before the COVID-19 crisis occurred. Once the valuations met out target, we increased our exposure through the ‘Aggressive’ segment (corporate high yield, corporate hybrids and financial subordinated). We also tactically used CDS on the iTraxx Crossover and iTraxx Main to hedge against the volatility at the beginning of the year, and finally in April to increase the beta in portfolio. We have been also participating actively in the primary market to capture risk premiums, notably on the corporate sector purchase programme issuers.
Thematics for H2 2020
Search for yield: With a depressed yield curve, a German bund trading below -0.40% and the amount of negative yielding assets around $13 trillion, the search for yield will remain a thematic, which should be supportive for the credit asset class.
Valuation: After the correction in March and despite the strong recovery from March volatility levels in April and May, we still believe that valuation remains attractive both in euro investment grade and high yield. Moreover, as highlighted by interventions from the European Central Bank and US Federal Reserve, the credit asset class is now a monetary policy tool; as such, the upcoming volatility should be contained.
Virus: The risk of a second wave may put some volatility on the market; however, it will not alter our constructive scenario, and we would use the volatility phases to add more risk.
* The investment process described above is provided for illustrative purposes only, and no assurance can be given that it will be applied at any given time. Please note that the investment process is subject to change without prior notice and cannot be considered as a reliable indicator of the ability of AXA IM to manage and mitigate risks, nor can be relied as a guide to future performance.
**As at 30/06/2020. © (2020) Morningstar. All Rights Reserved. The information, data, analyses and opinions (“Information”) contained herein (1) include the propriety information of Morningstar;
(2) may not be copied or redistributed; (3) do not constitute investment advice; (4) are provided solely for informational purposes;
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Morningstar is not responsible for any trading decisions, damages or other losses related to the Information or its use. Please verify all of the Information before using it and don’t make any investment decision except upon the advice of a professional financial adviser. Past performance is no guarantee of future results. The value and income derived from investments may go down as well as up.
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Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.
The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.
Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. References to league tables and awards are not an indicator of future performance or places in league tables or awards and should not be construed as an endorsement of any AXA IM company or their products or services. Please refer to the websites of the sponsors/issuers for information regarding the criteria on which the awards/ratings are based. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.
AXA WF Euro Credit Total Return fund is a sub-fund of AXA World Funds. AXA WORLD FUNDS ‘s registered office is 49, avenue J.F Kennedy L-1885 Luxembourg. The Company is registered under the number B. 63.116 at the “Registre de Commerce et des Sociétés” The Company is a Luxembourg SICAV UCITS IV approved by the CSSF and managed by AXA Funds Management, a société anonyme organized under the laws of Luxembourg with the Luxembourg Register Number B 32 223RC, and whose registered office is located at 49, Avenue J.F. Kennedy L-1885 Luxembourg. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX.