Square Mile Update

30 July 2020

By Eduardo Sanchez, Senior Investment Research Analyst Square Mile

Given the ongoing global uncertainty, it is worth highlighting a defensive strategy that is widely held within the Square Mile portfolios, the AXA Sterling Credit Short Duration fund.

This fund is well suited to investors who are willing to tolerate some level of volatility but are looking for higher levels of income than cash. It is a very defensive strategy with a low volatility profile and has one of the lowest drawdowns among its peer group within the IA Sterling Credit sector. For example, during the recent market sell-off in March, its drawdown was relatively low at less than 4% against a sector average of close to 9%. The fund is well diversified with over 100 issuers represented in its portfolio and it provides a natural level of liquidity since 20% of its holdings mature each year. It has a focus on investing in securities with maturities of less than five years which reduces the transaction costs while minimalising interest rate risk.

It is also important to note that since the sterling yield curve currently is very flat, the shorter duration part of the curve offers a very attractive yield relative to longer duration. This fund provides a yield of 1.7% with a duration of only 1.8 years. Securities with older maturities are yielding slightly higher, at around 2%, but with that the duration is in excess of eight years which introduces much greater interest rate risk. In our view, these characteristics make the fund very attractive and a very good fit for our managers’ investment philosophy.

The value of investments and any income from them can go down as well as up and is not guaranteed. Your clients could get back less than they originally invested. Past performance is not a guide to future performance. The portfolios' investments are subject to normal fluctuations and other risks inherent when investing in securities. Verbatim Asset Management has taken due care and attention in preparing this document, which is solely for the use of professional advisers. Verbatim cannot be held responsible for any inaccuracies arising out of information detailed within and will not accept liability for any loss arising out of or in connection with its use. The contents of this article should not be construed as advice and is for information only. Individual stock selection should only be performed by suitably qualified advisers.

Our thoughts expressed in this document relate only to the portfolios we manage, or advise on, on behalf of our clients and as such may not be relevant to portfolios managed by other parties. This document is for the use of Professional Advisers only and is not intended for the use of Retail Investors and should not be passed on to any such persons. Square Mile Investment Services Limited makes no warranties or representations regarding the accuracy or completeness of the information contained herein. SM does not offer investment advice or make recommendations regarding investments and nothing in this document shall be deemed to constitute financial or investment advice in any way. This document shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity and is not a recommendation to buy or sell any funds or individual stocks that are mentioned in this document. Past performance is not a guide to future returns and the value of capital invested and any income generated from it may fluctuate in value. Square Mile Investment Services Limited is registered in England and Wales (08743320) and is authorised and regulated by the Financial Conduct Authority (625562).