R-co Conviction Credit Euro – Conviction-based fixed income management in a higher-for-longer rate environment

In a fixed income environment still marked by volatility, R-co Conviction Credit Euro illustrates the ability of a high-conviction management to combine carry, risk discipline and allocation flexibility.

The solidity of the fund since the beginning of the year is based all on a high bond carry, that is to say on attractive coupons, combined with controlled sensitivity, which has made it possible to mitigate the impact of market movements. At the beginning of the year, the focus placed on high-quality issuers, with a portfolio mainly invested in Investment Grade¹ bonds, strengthened the overall robustness. This construction was complemented by strong diversification and by tactical hedges of credit risk, notably via the iTraxx Main CDS², in order to cushion shocks when this proved necessary.  

This management logic remains intact today: to build the portfolio in an opportunistic and flexible way, without renouncing prudence when markets become more demanding. The rise in rates and risk premia first led the management team to increase the portfolio duration as well as the exposure to the most remunerative credit, with the idea of capturing yield over a longer period. More recently, with spreads having returned to tight levels, the strategy consists more in preserving the yield embedded in the portfolio in order to benefit from the positive momentum that could accompany a possible resolution of certain geopolitical tensions, while reinstating hedges that had been partially removed during phases of volatility. This sequence clearly reflects the philosophy of the fund: to remain invested when a return potential still exists, but to continuously adjust the protection of the portfolio to the evolution of the environment.  

One of the most differentiating characteristics of R-co Conviction Credit Euro lies in its level of diversification and its selection discipline. Where some credit funds adopt more directional positioning or concentrate their convictions, the fund favors a very broad investment universe, composed of hundreds of carefully selected issuers. This diversification makes it possible to dilute idiosyncratic risk and to seek a more regular performance across different market regimes. Issuer selection remains central, with constant attention paid to credit quality, visibility of cash flows and the level of risk remuneration. It is this combination of diversification and selectivity that allows the fund to maintain a readable and robust management profile in a credit universe that is sometimes more unstable than it may appear.  

In the current environment, the euro Investment Grade segment appears as the most attractive in view of the risk/return profile. It benefits both from the rise in rates, which has improved carry, and from relatively limited credit risk. In addition, certain short-duration High Yield³ bonds may provide an additional yield with contained interest rate risk, provided they are approached with a high degree of selectivity. As for corporate hybrid bonds, they offer more significant spread premia, but with higher sensitivity; they are therefore treated sparingly and only on solid issuers. This hierarchy of market segments reflects a pragmatic reading of the environment: opportunities still exist, but they must be sought with method rather than with a logic of indiscriminate exposure to risk.  

More broadly, the market now seems to be incorporating the idea of a durably higher interest rate regime. Geopolitical tensions, the more persistent nature of inflation and the high level of public deficits are leading investors to revise their expectations. Where a monetary easing over the medium term still seemed conceivable a few months ago, the consensus now incorporates more the idea of a higher-for-longer rates plateau. In the euro area, market expectations have thus adjusted to a more restrictive scenario, and this reassessment could persist as long as inflation does not decelerate markedly and geopolitical uncertainties remain. For an active bond strategy, this new environment profoundly modifies trade-offs: the ability to capture yield without excessively degrading the risk profile once again becomes central.  

Within a portfolio allocation, R-co Conviction Credit Euro is precisely intended to play this role of “core” bond holding. Its high carry, resulting from an Investment Grade credit that has become attractive again, and its historically controlled volatility make it at the same time a carry fund, a bond diversification tool and a defensive allocation in an environment that remains uncertain. The objective is not only to seek regular income thanks to coupons, but also to mitigate market fluctuations through prudent management, high portfolio quality and an allocation capable of evolving according to the cycle. In a phase where investors are rediscovering the importance of the bond risk/return profile, this value proposition finds a particularly natural place within allocations. 

R-co Conviction Credit Euro - SRI : 2/7.

We have classified this product as risk class 2 out of 7, which is a low riskclass and mainly reflects its positioning on private debt products while having a sensitivity between 0 and +8. In other words, the potential losses associated with the future performance of the product are at a low level and, should market conditions deteriorate, it is very unlikely that our ability to pay you would be affected. The risk indicator assumes that you hold the product for 3 years, otherwise the actual risk may be very differentand you may get less in return.