Global Credit Video | MFS Active Global Fixed Income Investing

VO: At MFS, our specialized GLOBAL CREDIT TEAM of portfolio managers, analysts, and researchers work together creating a unified approach based on shared global insights and long-term conviction.

Pilar Gomez-Bravo: Our investment philosophy serves as the anchor to our investment process, and it's based on four key tenets. The first one is that we believe credit markets are inefficient for a variety of reasons, including rating agencies, liquidity and investor time horizons, and we therefore think that security selection can be a very good compounding source of alpha that is consistent over time. Secondly, the top-down allocation views can also be an important source of alpha for portfolios and create diversification of multiple alpha levers, especially as markets dislocate across regions, sectors and quality buckets. Thirdly, successfully managing credit portfolios, global credit portfolios, require strong collaboration between fixed-income equities and our quant teams, as well as between portfolio managers, traders, and analysts. And finally, it's really important for global credit portfolios to have a strong focus on risk management and portfolio construction, and in particularly, managing downside risk. We rely on the strength of our research platform to be the first line of defense for our portfolios, protecting from capital loss. And in credit, you have to be early not to be late, because of the liquidity of the asset class, and that also drives our approach to risk management.

VO: At the portfolio level, the team manages risk by focusing on allocation and risk budgeting along with views on the macro environment, fundamentals and valuations.

Andy Li: The first path of the process involves risk budgeting. Here, we established the tracking error budget, which incorporates views of MFS experts across the global investment platform. Key inputs into this involve the macro environment, corporate fundamentals, valuations, and market technicals, which include things like supply and demand and market positioning. We tend to run a higher tracking error budget when there's a lot of dispersion in the market, when there's lots of opportunities, or when our in-house macro views differ significantly from market consensus.The second part of the process looks at regions and sectors. Given that we are a global portfolio, we can invest in various regions, including US, Canada, the UK, Europe, Australia, and Asia to look for market dislocations. And finally, when thinking about sectors, we're looking for the best risk-adjusted opportunities across financials, industrials, utilities, and high-quality government-related credits.

VO: Our global investment teams regularly share information through open dialogue and connection - which is key to our active fixed income approach.

John Haddad: As analysts, we play a central role in security selection, which is a key source of value add for the portfolios. In practice, there are a couple elements that make that process uniquely successful here at MFS, one of which is our global research platform, which allows us the ability to leverage the insights not only of the Boston-based fixed income team, but also our peers in London, as well as our equity counterparts, which ultimately allows us to make better investment decisions. The second is the fostering of a collaborative, team-oriented culture. It really is a partnership approach between the analysts and the portfolio managers, where we're not only working to make sure that the right names make it into the right portfolios, but are also working to actively manage those positions over time.

VO: When constructing portfolios, the team’s focus is on managing risk in alignment with our views on fundamentals and valuations.

Pilar Gomez-Bravo: Our portfolio construction process relies on the adoption of one by rated names by our analysts, and therefore delivering to our clients high-conviction, bottom-up ideas that populate the portfolios. This requires the portfolio managers to work very closely and proactively in an engaged fashion with the analysts, as well as the traders, in order to execute the sizing of the risk according to the conviction that the analysts have in the portfolio. We also work very closely with the quant teams to help us assess and consider credit derivatives to manage efficiently the risk and the liquidity in the portfolio, including positioning for hedges as necessary.

VO: Our disciplined actively managed approach offers clients access to comprehensive Fixed Income expertise, a range of strategies, and active returns for long-term goals.

Owen Murfin: So, the empowerment of our analysts and higher adoptions of their highest-conviction views means that clients benefit from the full breadth of our experienced research platform. It also means security selection is a key driver to client outcomes, and this is highly consistent with our philosophy. The second thing then is, we've demonstrated good long-term track records on a risk-adjusted basis. We've also aimed to control the downside risk through the appropriate uses of hedges, but also control in particularly the amount of lower-quality bonds that we have in the portfolio. And then thirdly, we have both the resources and the scale to provide excellent client service. This means providing strong underlying transparency to portfolios, but also ongoing access to the credit teams.

Investments in debt instruments may decline in value as the result of, or perception of, declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall). Therefore, the portfolio’s value may decline during rising rates. The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice. No forecasts can be guaranteed.

 

The views expressed are those of the speaker and are subject to change at any time. These views do not necessarily reflect the views of MFS or others in the MFS organization, and should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.

 

This material is for information only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. Any securities and/or sectors mentioned herein are for illustration purposes only and should not be construed as an investment recommendation. Investment involves risk. Past performance or any prediction, projection or forecast is not indicative of future performance. The information contained herein may not be copied, reproduced or redistributed without the express consent of MFS. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, MFS does not give any warranty or representation, expressed or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. MFS accepts no liability for any loss, indirect or consequential damages, arising from the use of or reliance on this material.

 

The views expressed are those of the author and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice. No forecasts can be guaranteed.

 

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