Emmanuel Petit
General Partner, Head of Fixed Income
Launched in August 2019, R-co Valor Bond Opportunities is bond fund that puts a flexible and opportunistic strategy into play on the international fixed-income markets. The fund consists of a core corporate bond portfolio, along with satellite strategies, mainly in interest rates and inflation. The management team, consisting of Emmanuel Petit, Head of Fixed Income, and Julien Boy, Bond Manager, possess broad discretion in terms of allocation (credit risk, rate sensitivity, geographical regions) and in terms of management tools (futures, swaps and CDS(1).
Through our Valor fund range’s discretionary approach, R-co Valor Bond Opportunities has, over the past three years, demonstrated its ability to get through rough market phases while achieving satisfactory performances and meeting its objective of controlling volatility
2019-2020 – A promising launch
The corporate bond allocation, consisting of both financial and non-financial(2) issuers, was the main source of fund performance, driven in part by bond-picking. Timely expansion of exposures and tactical use of CDS, even during the Covid-19 crisis, proved to be beneficial to performance. Meanwhile, fund volatility was kept in check during a very rough 2020 with directional bets on nominal or real interest rates and inflation expectations, as well as with relative value interest-rate strategies between developed countries.
2021 – Early optimism was not misplaced
In 2021, corporate bonds continued to serve as a spearhead of performance, making a positive contribution despite deliberately more conservative overall positioning. Partial portfolio hedging via CDS was kept in place throughout the year.
The portfolio’s various satellite strategies, such as increased inflation expectations, the dollar’s appreciation vs. the euro, and relative value positions all generated returns.
R-co Valor Bond Opportunities’ potential was soon recognised at the Globes de la Gestion 2021 awards in the category “Best Newcomer” category. The prize recognised the expertise of the bond team, whose opportunistic investment philosophy is based on fundamentals, combined with broad flexibility.
Credit risk evolution(3) – 2020-2021
Source : Rothschild & Co Asset Management Europe, 31/12/2021.
2022 – A highly volatile market but one offering opportunities
So far this year, higher rates, combined with a spike in inflation has produced a challenging environment on the fixed-income markets, particularly for corporate bonds, but while also offering attractive opportunities. In investment grade(4), yields are once again attractive after sinking to extremely low levels for years. In high yield(5), there are bonds out there with credit trajectories that are positive or at least resilient.
From summer 2021, in anticipation of rising interest rates, we opted for negative sensitivity to real rates, first in the US and then in Europe. This helped us cushion the fall on the credit market. Different countries are situated at different points in the economic cycle, and that creates significant spreads between them, thus offering relative value opportunities.
Modified duration evolution – 2021-2022
Source : Rothschild & Co Asset Management Europe, 31/08/2022.
10 years real rates vs. derivatives sensivity
in %
Source : Rothschild & Co Asset Management Europe, 31/08/2022.
A positive showing in a chaotic environment
In just three years of existence, R-co Valor Bond Opportunities has faced an especially shaky macroeconomic environment marked by the Covid-19 crisis, the sudden resurgence of inflation, and the tightening of central bank monetary policies.
By being very responsive in its allocation choices, the management team has taken advantage of the fund’s flexibility with thoroughness and discipline, while seizing opportunities on the bond market.
(1) Futures are a firm commitment to buy or sell an agreed quantity of an asset at an agreed price on an agreed date.
A swap is a contract by which counterparties (generally banks or other financial institutions) agree to trade one financial flow for another within an agreed timeframe and under
specific pre-determined terms Credit default swaps (CDS) are derivatives that act as insurance against the non-repayment of a debt.
(2) Private company bonds.
(3) Credit risk (or adjusted DV01): A measure of bond risk that estimates its change in price in euros for each basis point change in its yield. It is calculated at the overall portfolio level
and may be expressed in basis points. “Adjusted” means that we consider a 1-basis point change in investment grade to be, historically, equivalent to 3.5 basis points in high yield
4) A debt security issued by a company or a government rated between AAA and BBB- on the Standard & Poor's scale.
(5)High yield bonds are issued by companies or governments having a high credit risk. They are rated below BBB- on the Standard & Poor's scale.
Source: Bloomberg, Rothschild & Co Asset Management Europe, 29/08/2022.
Management teams are subject to change.
References to past rankings and awards are not a guide to future rankings or awards.
The above information does not constitute investment advice or a recommendation to invest.
The figures quoted relate to past years. Past performance is not a reliable indicator of future performance, and is not consistent over time. The performance is calculated in €,
net of management fees and reinvested dividends. The investor is exposed to a risk of capital loss. For more details on the risks, the investor can refer to the prospectus,
section "Risk profile" of this UCI's prospectus.
