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Spectrum: why the credit boom is killing conviction

Home / Spectrum / Spectrum: why the credit boom is killing conviction

Fraser Lundie, CFA, Co-Head of Credit and Senior Credit Portfolio Manager
20 October 2014
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Strong conviction is essential for active fund managers: it shows belief in the prospects of favoured securities and is often necessary to outperform the market. But the portfolio concentration of active UK-domiciled credit funds is lower than many investors would think: 60% of funds allocate less than one-third of assets to their top 10 positions*, showing little conviction in their largest holdings and resulting in the majority of portfolios increasingly resembling the index.

Following the current credit market is risky. As more capital chases the same opportunities, investors become exposed to intensifying valuation and liquidity risks and to new bond structures that constrain returns. Risk increases while prospective returns diminish. What can investors, and the active managers they appoint, do to revive high-conviction credit investing?

Find out more in the latest issue of Spectrum, our global credit newsletter. *Source: Bloomberg 30/09/14

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Fraser Lundie CFA, Co-Head of Credit and Senior Credit Portfolio Manager Fraser joined Hermes in February 2010 and is lead manager on the Hermes range of Credit strategies and co-head of credit. Prior to this he was at Fortis Investments, where he responsible for Euro High Yield.  Fraser graduated from the University of Aberdeen with an MA (Hons) in Economics and earned an MSc in Investment Analysis from the University of Stirling. He is a CFA® charterholder and member of the Association for Investment Management and Research (AIMR), having gained the UKSIP Level 3 Certificate in Investment Management (IMC). In 2013, Fraser featured  in Financial News’s ‘40 Under 40 Rising Stars of Asset Management’, an editorial selection pick of the brightest up-and-coming men and women in the industry, and in January 2015, Fraser was named as one of the top 10 star fund managers of tomorrow by The Daily Telegraph. CFA® is a trademark owned by the CFA Institute.
Read all articles by Fraser Lundie

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