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Credit markets: The importance of agility

first_imgAgility should be the watchword in the new bond environment, according to Hermes Credit’s Mitch Reznick and Fraser LundieThere have been gradual but profound structural changes to the credit markets since the financial crisis. It is imperative credit managers recognise the world has changed and find ways to manage the new and rising risks.Although there is less systemic default risk and lower volatility within credit markets, the structural changes have opened up new risks to performance: liquidity, evolving bond structure, duration and idiosyncratic risks. To better manage these risks brought on by this structural change and to deliver outperformance, managers will need flexibility and to lean more heavily on a broader set of fixed income skills.The problem is that many credit fund managers must manage their funds according to narrow mandates and therefore lack the ability to access the pockets of relative value that emerge on a global basis, that more flexible investment mandates permit. Agility should be the watchword in the new bond environment. One of the risks in today’s low-volatility, rising-rate-concerned market is the crowded trade at the front of the credit curve, where one finds short duration and shortening maturity. Predicated on these rate rise fears, investors have heavily allocated to short-duration credit, allowing the pendulum to swing in the issuers’ favour.In the high-yield market, this ‘demand pull’ to feed these mandates has led to a surge in issuance of shorter-maturity, short-call bonds. Many of these have come from smaller companies that were once the province of the loan-market, but, because of bank deleveraging and demand, they have refinanced loans in the bond market.However, with more securities subject to shorter non-call periods, achieving long-term, equity-like returns with less volatility is more difficult. In addition, whatever idiosyncratic risks may exist in these names could be magnified given the paucity of trading liquidity compared with pre-crisis levels. Unexpected bad news could really catch some investors out. Managers must be more vigilant than ever of credit risks and deal structure.As for the risk of rising rates, making use of a broader set of debt instruments can mitigate these risks. For example, by hedging or using CDS, one can effectively manage for rising rates without having to enter what are potentially risky positions. Finally, because the dearth of liquidity will magnify any sell-off, we have managed the compression in the spreads between low and high-quality names by shifting to better credit quality, as one is not adequately compensated for the additional credit and liquidity risks. An effective way to compensate for not trading down in credit risk for yield is to manage on a global basis and look to emerging markets for opportunities.We have found that one can find spread-equivalent securities in higher-quality global emerging market names. These tend to be globally diversified, high-quality, double-BB, large-cap names, with revenue in US dollars. In the first part of the year, this has worked out very well. We have bought in India, Brazil and Russia – but the common defining characteristic is the robustness and global nature of the individual companies. We still see relative value here. There is, of course, some inherent emerging market risk, but this is compensated by the high quality of the companies to which we are gaining exposure. Cocos have been receiving much interest of late. And, while we appreciate their merits, their inherent structure raises some concerns for us, and we are not convinced many of these securities are priced appropriately. For the moment, we prefer more credit-friendly legacy capital securities, and US preference shares are an alternative.For US banks, preference shares perform a similar role to cocos and are favoured by the Federal Reserve as a means of building capital buffers. The securities are typically callable after 10 years, have non-cumulative coupons, and are issued out of the holding companies overseeing banking groups. As relative-value investors, we compared the dollar Wells Fargo 5.85% perpetual preference share, which is callable in 2023, with the BBVA 9% dollar perpetual coco, callable in 2018.The securities displayed similar valuations, but the Wells Fargo preference share has more bondholder-friendly terms. It offers less capital appreciation, but is less volatile and generates a higher Sharpe Ratio in both price and yield terms and should therefore deliver a better risk-adjusted return.Mitch Reznick and Fraser Lundie are co-heads of Hermes Creditlast_img read more

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Children celebrate fitness as part of nationwide program

first_imgAddThis Sharing ButtonsShare to FacebookFacebookShare to TwitterTwitterShare to MoreAddThisAlpena, Mich. — Students all over the country got active on the first day of May, participating in 20 minutes of physical activity.Students at Immanuel Lutheran ran relay races, took on obstacle courses, and even had a dance party to celebrate Project ACES. ACES stands for all children exercise simultaneously. Exercise instructors from Bay Athletic Club led the group exercise. The goal is to encourage kids to get active and have fun.“They just need to move for 60 minutes a day, so the more that we as parents and adults in the community can encourage the children to just get out and move, the happier the community is certainly going to be, and we’re certainly going to raise some amazing little human beings,” said Tracie Granata, group exercise instructor at Bay Athletic Club.Kids even had some bonus activity since the session ran 25 minutes. Immanuel Lutheran has been participating in Project ACES for the past decade, always on the first school day of May.AddThis Sharing ButtonsShare to FacebookFacebookShare to TwitterTwitterShare to MoreAddThis Tags: alpena, bay athletic club, exercise, fitness, Immanuel Lutheran School, Project ACES, Students, Working outContinue ReadingPrevious Senior Living: addressing what happens next after a procedure or hospitalizationNext Photo of the Day for Thursday, May 2last_img read more

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Bill to limit flags over Iowa government buildings after transgender flag flown

first_imgDES MOINES — Two Republican senators have advanced a bill to limit the kind of flags that may be flown over public schools and government buildings in Iowa. The proposal comes after a pink, white and blue “Transgender Pride Flag” was flown over the Iowa capitol in November. Republican Senator Roby Smith of Davenport sponsored the bill and discussed it during a subcommittee hearing at the capitol.“We have to draw lines in this building all the time and we’re drawing a line and saying that the American flag, the Iowa flag and the (Prisoner of War) flag,” he said.If the bill becomes law, those are the only three flags which may be flown over schools as well as city, county and state buildings. Senator Tony Bisignano, a Democrat from Des Moines, opposes the bill. Bisignano said he went online and found a lot of people he called “homophobes” who objected to the pink flag flying over the Iowa Capitol on Transgender Remembrance Day.“I don’t understand the disturbance with people that have a problem with the recognition of a day for pride and I don’t mean that in (just) gay pride, ” Bisignano said. “I mean that in pride of anything.”Senator Jake Chapman of Adel, a Republican, said flags at public buildings should be about patriotism and unification.“If we go down this path of allowing all these different flags to fly, we will run into a situation where we’re all uncomfortable, perhaps (people would request) the KKK flag or white supremacy or the Nazi flag (be flown) and so if it’s okay for one, it’s okay for the other,” Chapman said. “…We have to draw that line.”The bill is now eligible for debate in a full Senate committee. Officials at the state universities are seeking some exceptions. “The concern is about the football stadiums where they have numerous flags” Big 12, Big 10, all the affiliations with the conferences,” said Carolann Jensen, a lobbyist for Iowa State University.Only one group — the Iowa Association of Labor — is registered in opposition to the bill.The transgender flag flew over the capitol for about five minutes in late November at the request of an organization called Iowa Safe Schools.last_img read more

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Comets no match for Senior Flyers

first_imgThe Fort St. John Senior Flyers welcomed the Manning Comets to the North Peace Arena last night. It was evident from the start that it would be a long night for the Comets as they Flyers dominated in all aspects and rolled to an 11-4 victory.The Flyers led 3-1 after the first period and led 16-10 in the shots on goal.Early in the second period the Flyers increased their lead to 5-1. By the time the second period came to an end Fort St. John had a commanding 8-3 lead.- Advertisement -With the game well in hand the Flyers added to their lead as they netted an additional three goals. Manning responded with a goal of their own to round out the scoring.There wasn’t a whole lot to say after the game given what transpired on the ice as the Flyers took the game convincingly. Head coach Gerard Dicaire said the team used the game to sharpen up the X’s and O’s of what they do on the ice.“There isn’t a whole pile to say about the game. It wasn’t so much about confidence but about not creating bad habits. Tonight I don’t know how many times we went over our set breakout. It’s good against a team like this to work on systems play. That’s what I use these games as.”Advertisement Scoring for the Flyers in the game were Rick Cleaver (3), Jeff Shipton (2), Joey Massingham (2), Robbie Sidhu (2), Cole Calliou, and Adam Horst.Next for the Flyers is a game on at home on January 17 at 8:30 against Falher.last_img read more

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