Q&A WITH THE INVESTMENT TEAM OF APERTURE CREDIT OPPORTUNITIES FUND
Most segments and sectors had a very strong 2019, leaving little obvious value to be sourced. So where do you see investment opportunities in the coming months?
- Screening: screening for value in names that have broadly sold off during the year and trade in spread terms between 400-800bps (mainly single Bs)
- Financials: there are a few cheap names (especially in the UK), as well as some potentially positive convex liability management exercise situations. Broadly, we prefer financial risk (banks and insurers) to corporate risk on a relative value basis
- Idiosyncratic single-name shorts: we continue to screen for overbought, expensive credits with deteriorating or weak outlooks. These will likely make up the majority of our idiosyncratic single name shorts
- Basis: we see negative basis opportunities across the market as a result of the strong technicals in the CDS market. This throws up carry-neutral relative value opportunities in credits that we expect to experience spread-widening in 2020
- US credits: US credits appear to have a greater propensity to trade up from here but only if sub-par growth continues to force the Fed’s hand in cutting rates. Goldilocks conditions could see US credit produce surprisingly strong total return next year (especially if a slightly stronger oil price can give a floor to the energy sector)
How do you position the portfolio for the current market environment?
For the time being we remain constructive on credit markets as “more of the same” seems to be the most likely macroeconomic outcome.
Economically the same risks remain; namely elevated growth/inflation expectations leading to much higher than expected risk-free yields, plus a broad exit from fixed income and the opposite which would most likely result in recession and the inevitable rise in default rates.
Idiosyncratically we will be keeping a close eye on the European debate around fiscal easing, the US Presidential election and the trade war outcome or lack thereof.
Looking at 2020, where do you expect to find value?
2020 is unlikely to generate returns close to those that investors have experienced this year in credit. Regardless, we look forward to further spread dispersion in 2020 and what promises to be a fascinating year for investing.
Spread dispersion continued in a favorable manner for the fund, investors are now faced with a very different opportunity set than the one this time last year.
Thank you to our investors for their support this year and we look forward to working together next year.
The Investment Team,
Chief Investment Officer, UK
New York Aperture Credit Opportunities Fund
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