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  • November 14, 2018
    Fixed Income
    360° Fixed income report Q4 2018
    Andrew Jackson
    Being a perma-bear is a little like a football coach selecting proven yet underperforming players and tactics in a season of poor results: changing course is difficult once you’ve invested a lot in a team roster and strategy, even though most enthusiasts understand that the game has moved on. But there is a key difference: the perma-bears know that the longer they are wrong, the more likely they are to be correct tomorrow. We should therefore not ignore perma-bears, while also trying to avoid the trap of being wrong for the wrong reasons.
  • September 6, 2018
    Fixed Income
    Under vanilla skies – outlook for fixed income markets
    Andrew Jackson
    Strong credit fundamentals, stable leverage, low default rates and high interest coverage, means that global fixed income markets are currently a profound shade of vanilla. So says Andrew Jackson, Head of Fixed Income at Hermes Investment Management, in his quarterly market update. As a credit investor, my natural outlook is pessimistic to catastrophic. Despite all of my natural instincts, across the corporate world, balance sheets look robust, leverage is not imperiling companies and interest coverage ratios are good – even when likely interest-rate increases are taken into account. True, the financial state of the UK high street is ugly, but we do not think that its current wave of defaults and restructurings is a forerunner of the much-anticipated end of the credit cycle. We may have to wait longer before that happens. As liquid credit curves have steepened, we prefer longer maturities. At the long end, there is an attractive combination of relative under-ownership, superior roll-down and convexity. In emerging market (EM) credit, our appetite is for investment grade over high yield. Since 2015, there has been a lack of dispersion risk priced in to EM high yield compared to EM investment-grade credit. As a result, we prefer investment-grade to high-yield EM issuers, particularly when the company demonstrates improving environmental, social and governance (ESG) fundamentals. At a regional level, the underperformance of Latin America on a year-to-date basis creates an opportunity for tactical allocation of capital to this region. We have seen UK and European yield private debt premiums shrink due to stronger UK growth. There has also been a significant improvement in the UK mid-market M&A pipeline, causing pricing competition to fall and midmarket loans are now providing a yield premium of about 85-100bps relative to euro-denominated loans. The retail and hospitality sectors, which are currently experiencing some stress, remain a concern in the UK private debt market and this has led to a rise in loan defaults.
  • August 21, 2018
    Fixed Income
    360° - Fixed Income Report, Q3 2018
    Andrew Jackson
    When I started writing this launch issue of 360°, I aimed to provide catchy, easy-to-understand predictions followed by non-consensus opinions that would grab your attention. Unfortunately, I can’t give you either: disappointingly, my core views are currently profoundly vanilla. A summary of my core views is as follows: Credit fundamentals and affordability are positive.  Having been stretched, valuations are now more attractive and the relative value of credit against equities appears favourable. Technicals are severely stretched in certain credit sectors, but are broadly neutral or positive. The complexity and illiquidity premia of certain sectors and instruments still offer significant value for investors with the required access and tolerance for risk.
  • May 30, 2018
    Fixed Income
    Amplified: Why now is the time for an unconstrained approach
    Andrew Jackson
  • May 30, 2018
    Fixed Income
    Hermes adds to fixed income offering with launch of Unconstrained Credit Fund
    Andrew Jackson
    Hermes Investment Management, the £33.6 billion manager, has today added to its global fixed income product offering with the launch of the Hermes Unconstrained Credit Fund. The UCITS Fund, seeded by cornerstone investors including Quilter Multi-Asset, has investor commitments of £185m and aims to offer a high-conviction, multi-sector credit solution that is structured to perform throughout market cycles. The investment process combines top-down allocation across the global liquid-credit spectrum with bottom-up, high-conviction security selection. This is complemented by an options overlay to manage risks within the prevailing market environment. Andrew Jackson, Head of Fixed Income, and Fraser Lundie, Co-Head of Credit and Lead Credit Portfolio Manager, will manage the Fund and look to exploit opportunities throughout the global liquid credit spectrum in investment-grade and high-yield bonds, loans, credit-default swaps, asset-backed securities and other credit derivatives. Through assessing credit risk appetite across liquid-credit markets, the Multi-Asset Credit Investment Committee will provide allocation guidance, with bottom-up credit selection, implemented following intensive fundamental credit analysis that includes pricing in ESG risks. The options overlay will hedge high-conviction positions by mitigating the impact of any broad-based material deterioration in credit markets.
  • May 8, 2018
    Corporate News
    Hermes expands Fixed Income team with two new hires
    Andrew Jackson
    Hermes Investment Management, the £33.0 billion manager, has today announced the expansion of its Fixed Income team with two new hires in London. The appointments are representative of the firm’s approach to providing current and prospective clients with access to all areas of global credit markets. The Fixed Income team is now 26-strong, providing solutions across both public and private debt markets. Stephane Michel has been appointed as Senior Portfolio Manager as of 19th March 2018. Reporting to Andrew Jackson, Head of Fixed Income, Stephane will be using his breadth of experience to assist Andrew in the build out of both the Asset Based Lending platform as well as the wider Multi-Asset Credit (MAC) capabilities for Hermes. He will be responsible for identifying market opportunities, trends and strong risk-adjusted relative value across illiquid markets as well as making portfolio composition recommendations.
  • March 14, 2018
    Fixed Income
    Plotting a course for stable income in volatile markets
    Andrew Jackson
    ‘Fishermen know the sea is dangerous and the storm terrible, but they never found these dangers sufficient reason for remaining ashore’. So once remarked Vincent Van Gogh, and the same could be said of experienced fixed income investors, as they face an increasingly treacherous juncture for bond markets. The reality is we are facing the unwinding of the most unprecedented synchronised action by central banks in history. While opportunities exist in both liquid and illiquid credit, investors should be heeded to fit a guardrail, as stormier conditions loom on the horizon. From accessing the illiquidity premium to applying overlays to global liquid credit, Andrew Jackson, Head of Fixed Income at Hermes Investment Management, outlines how to plot a successful course though choppier bond markets. Harvesting the illiquidity premium in private debt As we move into the final stage of this economic cycle, accessing the entire spectrum of private debt can enhance portfolio returns, but also provide a rich seam of income. However, investors must be discerning to navigate the approaching headwinds. By applying a selective approach, private debt can exhibit more defensive characteristics than public debt and is relatively conservatively underwritten. Leverage and operational gearing is also lower. Long-term investors don’t only have to view illiquidity through the prism of risk, but as an additional dimension to the risk-reward dynamic.
  • November 22, 2017
    Fixed Income
    Panning for opportunities in private debt
    Andrew Jackson
    At the eye of the storm during the financial crisis, debt markets have more recently been broadly characterised by one factor; a chronic lack of yield. A historically unprecedented campaign of quantitative easing by the central banks pushed debt prices up and yields lower, even as suppressed interest rates eliminated the value of cash, according to Andrew Jackson, Head of Fixed Income at Hermes Investment Management. Although prices should in theory fall as quantitative easing is slowly reversed over the next months and years, that process will be painfully slow and so is unlikely to relieve the pressure any time soon.