Pharus Sicav Target: Buffett rule respected, performance assured
The management team of Pharus Sicav Target describes the moves made in recent months, which are enabling Pharus' bond segment to confront the current crisis much better than its competitors, and its intentions for portfolio asset allocation in the near future.
"Be afraid when others are greedy and greedy when others are afraid" is a rule of Warren Buffett that investors should never forget, no matter what stage of the market they are going through.
Our managers have not only been following this mantra on equities during the recent weeks of the coronavirus crisis, but have also adopted it in the management of the Pharus Sicav Target bond fund in the last 10 months.
In July 2019, in fact, when very tight spreads led investors to look for attractive returns among questionable issues, such as individual Chinese and Turkish Bs, the Fund Manager team opted for a defensive approach, reducing the riskier component and including a significant proportion of US Treasuries in the portfolio, up to a maximum limit of 25%.
Our quantitative analysts have in fact concluded that the best hedge in the event of widening spreads is the Treasury. This thesis has been refuted in recent weeks of pandemic chaos, even in the financial markets: since the beginning of the year the Treasury is the only asset class that is performing positively, at 9%.
Having put "hay in the barn" is allowing the management team to sell Treasuries and buy really interesting BBB bonds. Although the credit market shock has not spared ratings and maturities, currently, as in all phases of stress, the worst affected part of the curve is the short-term and the most heavily penalised asset class seems to be Investment Grade bonds, especially those with BBB ratings. It is estimated, in fact, that around 600 billion US bonds have automatically moved from Investment Grade to High Yield, due to the higher probability of default.
"In the coming weeks we will focus for the moment on BBB opportunities, which tend to be short (within 4 years). Notably the US and European large caps, which have been particularly affected and will benefit from the extraordinary liquidity manoeuvres of the Central Banks. In the long term, however, we remain even more confident about the value of the High Yield component, on which the sector's strategy is usually focused.
We are also considering increasing the convertible share on high-quality companies, where equity has been hit hardest. Finally, we will maintain strong diversification by sector, geographic area and issuer as an allocation principle, selecting 3 main areas of our portfolio: US, Europe and Emerging Markets, with over 300 names in the fund", concludes our Management Team.
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