Five years of the Bentham Global Opportunities Fund: volatility presents opportunity
Richard Quin
Bentham Asset Management has announced that the Bentham Global Opportunities Fund has marked its five-year anniversary with a positive one year, two year, three year and five year return to 30 June 2022, at a time when fixed income and credit markets have been pressured by rising rates and widening credit spreads.
The Bentham Global Opportunities Fund is focused on providing diversified exposure to securities across global credit markets, with the flexibility to adapt its credit and cash exposure to suit market conditions across the credit cycle and deliver consistent levels of income. The Fund can also be actively short specific markets (such as the rates markets in 2021) and can utilise leverage (on an opportunistic basis) up to 30%.
The Fund (which is now in excess of $500 million in AUM) was seeded by a number of large family offices and institutional clients and invests in a range of credit securities, including syndicated corporate loans, investment grade and high-yield corporate credit, capital securities, hybrids and asset-backed securities. It employs the same process as the successful Bentham Global Income Fund (which has an 18-year track record) but with wider investment ranges including the ability to hold 100% non-investment grade credit. The target return is bank bills +4.00%.
Over the three years to June 30, 2022, the Fund returned 5.2% p.a*. This compares favourably with global High Yield markets which were down -1.2% and the local Fixed Income market which was down -2.6%.
Over the past year (to June 30), the Fund returned 1.77%*. This compares favourably with global High Yield markets which were down -12.8% and the local Fixed Income market which was down -10.5%.
These results were achieved through active management across global credit markets and interest rate markets.
Richard Quin, Bentham’s Principal and Chief Investment Officer, says: “Volatility presented us with opportunities but required active management in such an unusual environment.”
“The past 12 months were particularly positive for the Fund’s interest rate strategy. We benefited from rising interest rates being outright short interest rates. More recently, we moved to a long interest rate position once markets had more fully priced the future interest rate increases.”
Quin says investors are concerned because they are seeing some of the fastest increases in cash rates in history.
“While challenging, investors should welcome the rate rises because they are normalising markets after years of abnormally low rates. Potential returns are higher”, he said.
Reflecting the wider credit spread and higher rates over the past 12 months, the Fund finished Financial Year 2022 with a yield to maturity of 9.02%, up from 4.92% in June 2021.
Quin says credit market fundamentals remain sound, with credit ratings agencies forecasting default rates to remain well below historical averages in recession.
“We believe that the increase in credit spreads compensates for the increased risk of a slowdown. Credit markets are likely to provide favourable risk-adjusted returns over the next 12 months, particularly floating rate credit, despite the increased risk of higher government bond yields,” Quin says.
He adds that the Ukraine war has provided opportunities to invest in capital securities and energy exposures that experienced an unwarranted sell-off after the conflict started. These positions rebounded towards the end of the quarter.
