We have deliberately chosen an unconstrained, i.e. benchmark-free approach of investing absolutely everywhere. Photo: honglouwawa Source: iStock

Our approach is deliberately unconstrained

Author: Lutz Röhmeyer and Timo Lüllau-Mortensen

Generating adequate returns from fixed income is challenging as interest rates remain low. There are, however, strategies like that of the Capitulum Rentenstrategie optimiert Universal (ISIN DE000A2H7NS5 / DE000A2H7NT3) that is unconstrained by any benchmark and as such free to screen the entire global fixed income market for appropriate bonds. Lutz Röhmeyer, CEO of Capitulum Asset Management, explains his approach in the interview with ChampionsNews.

Lutz Röhmeyer, CEO of Capitulum Asset Management Photo: Sven Jakobsen Source: Universal-Investment

ChampionsNews: Mr Röhmeyer, you favour global bonds of quasi-government issuers - which gives you a very large fixed-income universe. How do you identify particularly promising candidates for the portfolio?

Röhmeyer: The Capitulum Rentenstrategie optimiert Universal (ISIN DE000A2H7NS5 / DE000A2H7NT3 ) targets investors desirous to consistently generate attractive interest income without significant price fluctuation. We seek to minimise this risk by making our bond selection as diverse as possible and focusing on issuers that can count on government backing. With this in mind, we continually monitor our investment universe to buy bonds with the best risk/return profile for our investors - while, of course, also looking for attractive new issues with subscription incentives.

ChampionsNews: Does the Capitulum Rentenstrategie optimiert also hold emerging market or frontier market bonds?

Röhmeyer: We have deliberately chosen an unconstrained, i.e. benchmark-free approach of investing absolutely everywhere. Index considerations aside, however, the emerging markets have always been important for us because their geographic location alone still results in higher yields even though the leverage and growth rates that govern credit ratings and, as such, investment decisions, are often much more favourable than in the developed world.

ChampionsNews: How do you mitigate potential portfolio risks, for instance from unrated bonds?

We consistently hedge all foreign exchange risks in the Portfolio.

Lutz Röhmeyer

Röhmeyer: We have deliberately chosen an unconstrained, i.e. benchmark-free approach of investing absolutely everywhere. Index considerations aside, however, the emerging markets have always been important for us because their geographic location alone still results in higher yields even though the leverage and growth rates that govern credit ratings and, as such, investment decisions, are often much more favourable than in the developed world.

ChampionsNews: How do you mitigate potential portfolio risks, for instance from unrated bonds?

Röhmeyer: The fund aims to generate returns in excess of local money market rates for our investors, both in low interest rate environments and when interest rates are ticking up again. This means that we seek to reduce risks that would be reflected in heightened fund price volatility. For this reason, the Capitulum Rentenstrategie optimiert Universal consistently hedges all foreign exchange risks. In a bid to avoid temporary losses from falling bond prices as capital market interest rates rise, we also use standardised, counterparty risk-free derivatives to constantly reduce duration. Conversely, we want and must take credit risk as it is the concept’s source of returns. Investing in unrated bonds is not necessarily problematic because issuers of unrated debt are frequently well-known to market participants and can therefore afford to avoid the costs of the rating process, which, in turn, benefits the yield to maturity.

ChampionsNews: Which bonds have proven particularly successful in the portfolio in the recent past?

Röhmeyer: Political pressure has led investors to increasingly avoid quasi-government issuers from Russia like Gazprom or the local transportation leasing company GTLK even though they are not subject to sanctions and exhibit positive fundamentals. This creates return opportunities since new issuance is dwindling as a result of the sanctions and existing bonds offer a scarcity premium and as such greater value and a steady price development. Older callable issues by core European banks have also done well. Their prices have increased significantly as they benefit from early repayment at par. And let us not forget the bonds of the state-owned Mexican oil company PEMEX that have again significantly stabilised now and still offer yields to maturity of over four percent for euro-based investors.

 

Author: Lutz Röhmeyer and Timo Lüllau-Mortensen
Date of issue: 12/7/2018