Fixed income

Pictet Asset Management's investment philosophy and process for global and regional bond portfolios is based on three distinct principles, namely diversification, risk management and a team-based approach.

Our investment process exploits multiple sources of added-value and aims to deliver stable returns. We begin with a top down assessment drawing on proprietary models assessing macro fundamentals by monitoring economic cycles and investment themes.

Valuation (through fair value models, carry and roll-down analysis), market sentiment (through risk aversion indicators), and technicals (through momentum, flows, positioning, and technical analysis) complete the macro-economic fundamental picture to establish the judgemental active positioning versus the benchmark.

Our objective is to add value through rigorous implementation of our process output, both in terms of adequate diversification of the risk budget between allocation and overlay positions, and a disciplined strategy of stop loss and profit taking.

We adopt a flexible approach to implementing our strategy and aim to achieve consistency across all portfolios and taking account of their specific risk guidelines. We manage market risks within a strict analytical framework.

Our main global and regional bond products include European bonds, global bonds and US bonds.

We manage Swiss bonds using both an active and passive approach. Duration, sector, rating and issuer domicile are carefully analysed using a multidimensional risk matrix.

All positions are continuously monitored by an experienced and dedicated Swiss bond management team.

Emerging economies have evolved remarkably and a combination of inflation targeting and floating exchange rates has transformed the domestic capital markets.

We employ a dedicated, well resourced and experienced team, which uses a proprietary investment approach, separating the sources of performance into two distinct elements, namely interest rates and currencies. The experience gained on the developed bond market is also incorporated into our thinking through an assessment of the top down global risk environment. When combined with our bottom up country analysis, this top down view provides a powerful platform on which to base investment decisions. We manage portfolios in both hard and local currencies.

Two key decisions were taken to focus the team:

1) to structure the risk takers as regional specialists rather than instrument specialists, reflecting our belief that expertise across all instruments – USD debt, local debt, and currencies – enhances the knowledge required to trade each market successfully; and

2) to require that all Asian specialists (two investment managers, one credit analyst and one trader) be based in Singapore in order to overcome the barriers to investing in Asia, namely the time difference and market idiosyncrasies.

Credit includes both investment grade corporate bond and high yield portfolios.

Corporate Bonds We first examine the credit cycle of companies. Are they in a leveraging or de-leveraging trend and why? Rising leverage in times of growing revenues and margins is a positive indicator, in slowing conditions it is a concern.

Secondly, we analyse the rating cycle to determine whether conditions favour upgrades, downgrades, or a change in the default rates.

Finally, equity valuations and volatility are critical in deciding allocations between government bonds and credit, as credit is a claim on an issuer’s assets and cashflow.

High Yield High yield falls into three broad groups, namely leveraged buyouts and "good" high yields, fallen angels, or blue chip companies whose credit ratings have deteriorated, and distressed debt.

Our way of investing in High yield is predominantly bottom-up and we therefore spend most of our time in company specific analysis.

Our investment process concentrates on identifying issuers with unrecognised, or under appreciated, recovery or deleveraging potential in their respective category.

Fixed income and money markets have become increasingly complex in recent years. Given the major risk that we manage, our objective is to optimise our funds' performance in terms of credit, liquidity and duration. Our investment process is closely integrated with the credit research team, as we believe that credit is the main driver of performance and risk. At the same time, we pay strong attention to the fund liquidity, both at the asset level and at the portfolio structure level.

Our dedicated trading team enables us to have extensive access to all markets, both international and domestic. Our multicurrency fund range enables us to allocate to all portfolios for any market opportunity.

As we work closely with both the credit research team and trading desk, and we have a dedicated and tailor-made investment tool (PAMFolio), we are best positioned to react and benefit from any market developments.

With our Money Market products, we aim to offer investors attractive returns on cash through active management within a structured risk framework.