ChampionsNews: Dr Leber, the ACATIS Fair Value Bonds (DE0009769844 ) looks at bonds issued by companies that meet high environmental, social and governance (ESG) standards. What do you expect to gain from sustainability?
Leber: By combining value and sustainability, we offer investors the opportunity to support companies that operate sustainably or are making progress to achieve this objective. At the same time, investors have the chance to generate attractive returns at relatively low risk levels. Far from being a short-term trend, sustainable investments have now become an asset class in their own right. And sustainable investments are investments for future generations, which makes us excited about the growing demand.
ChampionsNews: You combine sustainability with value. In which countries and sectors can you typically still find bonds with a value approach?
Leber: The ACATIS Fair Value Bonds favours eurobonds, which automatically means that the majority of issuers come from the European Union (EU). About 90% of the fund holdings are currently euro denominated. As value investors, we don‘t usually favour specific countries or sectors; instead, we focus on undervalued securities. We also diversify across several issuers to avoid risk concentrations. In terms of sectors, we are finding attractive subordinated bonds in the European banking and financial services industries. The fund’s top three positions come from Deutsche Bank, Santander and Société Générale. Systemic concerns mean that financial institutions in the EU benefit from government protection. Since the authorities want to avoid bankruptcies of banks or insurance companies in the EU, we still see potential at limited risk levels in this sector.
ChampionsNews: How exactly do you select bonds and what is the role of risk?
Leber: Bonds are first assessed by the rating agencies Imug/Vigeo Eiris according to ACATIS’ proprietary fair value criteria. We then subject potential portfolio candidates to a quantitative screening. The buy decision is made after in-depth issuer and issue research and the evaluation of company specific information. Risk is a crucial consideration for us. We therefore place special but not exclusive importance on safety and low volatility aspects when selecting bonds. Over the past three years, the fund had a volatility of below three percent. We currently generate concrete investment ideas via Bloomberg and from extensive discussions with the traders of Hauck & Aufhäuser.
As value investors, we don‘t usually favour specific countries or sectors; instead, we focus on undervalued securitiesDr. Hendrik Leber ,
Managing Partner ACATIS Investment
ChampionsNews: How does the current low interest rate environment affect the fund and how do you address this?
Leber: The current low interest rate environment is a real spoilsport. Since issuers find cheaper refinancing opportunities in the market, they regularly call bonds that we would have liked to hold for longer. As a result, the fund’s cash position increases from time to time and requires us to find new investment opportunities. That is more challenging at the moment; however we always seek to be fully invested.
ChampionsNews: Are there still attractive government bonds with calculable risks out there in the low interest rate world?
Leber: In a word: no. And we also have misgivings about regulators. Consider for instance a bond issued by Banco Espirito Santo in Portugal that transferred debt from the “good bank” Novo Banco to the “bad bank” Banco Espirito Santo in a breach of European law. While we only bought the bond after its price had declined and benefited from the ensuing recovery, we find this behaviour annoying. We have seen similar breaches of rules in Italy and Greece. That makes us wonder what you can still rely on.
Author: Dr. Hendrik Leber, ACATIS Investment
Date of issue: 5/24/2018
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