Efficient Beta

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Our efficient beta strategies aim to harvest returns by exploiting systematic and structural market inefficiencies which are often ignored by other managers as a result of high trading costs and the inability to source certain bonds in illiquid segments of the global fixed income market.

Our strategies seek to generate sufficient returns after trading costs to deliver index-like returns with a low tracking error. In addition, our ‘Beta Plus’ strategies permit greater tracking error in the pursuit of higher alpha.

Access to an untapped source of liquidity and precision

Insight’s team employs an innovative credit portfolio trading approach for most of our strategies, taking advantage of the rising ETF ecosystem in fixed income. This allows us to trade customised baskets of hundreds of corporate bonds in high volumes within hours of a decision being made.

This innovative trading approach has enabled us to add value in the following ways:

  • Value preservation: Significantly reducing the performance drag caused by high trading costs in less liquid markets with inherently wide bid/offer spreads
  • Consistent beta: Meaningfully reducing the tracking error caused by biases or exposure delays when trading to create broad, diversified, index-like exposures
  • Harvest alpha: Exploiting fundamental and structural market inefficiencies which are often ignored by active managers due to poor market liquidity, using our quantitative credit model

Our strategies

US Fallen Angels (Beta Plus)

US fallen angel indices have significantly outperformed broader high yield indices consistently over a decade1. The ‘forced selling’ when issues are downgraded to high yield and the initial difficulty in valuing these issues creates mispricing opportunities, which can then lead to outperformance. Our Fallen Angels strategy aims to systematically capture this structural mispricing opportunity while implementing risk controls to produce alpha versus the fallen angel benchmark.

US and global high yield

An alternative to passive management providing broad, diversified beta exposure that aims to avoid the significant performance drag and high tracking error common in this market. It can serve as a standalone strategy or as the core exposure within an active multi-manager strategy to provide more consistent market exposure, allowing active managers to focus on delivering alpha.

Global investment grade corporate (Beta Plus)

We seek to add additional value by systematically exploiting opportunities often ignored by traditional investment grade credit managers. Specifically, we will hold onto the value opportunities created by fallen angels, as we believe untimely selling of these bonds is a significant source of underperformance. Additionally, will consider a higher allocation to more attractive risk-adjusted return segments while buying fundamentally mispriced bonds.

Emerging market debt

This strategy provides exposure to high quality local currency bonds that aims to deliver a high income as well as potentially attractive total returns, with a diversification benefit relative to developed market rates and credit. It seeks to add value by systematically exploiting term premia from individual issues, one of the most consistent sources of return in this market, and minimising tracking error by not taking active currency positions, a significant cause of deviation.

Investors can access our efficient beta capabilities via the BNYM Mellon fund range, or on a segregated basis.

Fixed income team in numbers

  • 114 Fixed income investment professionals globally
  • 18years Average experience of fixed income team
  • £153.8bn fixed income assets

As at 30 June 2021. Assets under management (AUM) are represented by the value of cash securities and other economic exposure managed for clients.

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1Source: eVestment. eVestment statistics are subject to change based on the number of universe constituents reporting. Data Source: Bloomberg.

Important information

The value of investments and any income from them will fluctuate and is not guaranteed (this may be partly due to exchange rate fluctuations). Investors may not get back the full amount invested. Past performance is not a guide to future performance.

The issuer of a debt security may not pay income or repay capital to the bondholder when due.

Investments in emerging markets can be less liquid and riskier than more developed markets and difficulties in accounting, dealing, settlement and custody may arise.

Investments in bonds are affected by interest rates and inflation. For a full list of applicable risks, and before investing, investors should refer to the Prospectus or other offering documents.

Where high yield instruments are held, their low credit rating indicates a greater risk of default, which would affect the value of the portfolio.

Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.

The investment manager may invest in instruments which can be difficult to sell when markets are stressed.