The investment approach has three pillars:

Margin of Safety: The team works relentlessly to identify undervalued individual securities from a bottom-up perspective. That is, only buying bonds where the yield greatly overstates the default risk. The team assesses the default risk by undertaking rigorous credit research, combing through the financials line by line, focusing on cash generation, rather than adjusted earnings.

Alpha not Beta: Each company in the portfolio has an individual credit improvement story, which is typically uncorrelated to the macro or the rates cycle. These bonds tend to be less correlated to one another and the broader market. The result is that we aim to outperform in both rising and falling markets, due to multiple uncorrelated drivers of risk and return.

Small is Beautiful: Whilst the investment grade market is hugely diversified, it is also concentrated (11% of the number of issuers account for more than 50% of the index¹). Large issuers that dominate the benchmark tend to have worse risk/reward, because they typically have higher leverage and a lower yield. Therefore, we focus our time analysing small and medium sized issuers which are less well researched and can often offer attractive expected returns relative to credit risk. Small and medium sized Investment Grade issuers are large companies in the absolute sense.