a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

As Miguel Luzárraga commented a couple of months ago in the Asset Managers interview, AB made the decision to have presence and local treatment in 2018, with a representative office, and it is when Luzárraga begins to write his blank book, a book that has been going well so far and already reaches close to 2,000 million euros of assets in Spain and where the Variable income represents 70%, while fixed income represents 22% and 8% the alternatives.

That is why, in this note, two Variable Income strategies and one Fixed Income strategies will be analyzed, which will be the one we start with:

AB American Income: it is a strategy that invest diversified in dollar denominated bonds. Depending on the fund’s prospectus, the bonds can include all types of US corporate and government securities, as well as bonds issued by non-US governments and corporations but issued in dollars. The minimum exposure will be at least 65% in assets of North American issuers and will not invest in those issues whose rating from Moody’s and S&P is lower than B.

Such is the diversification that even when USA represents 73.1% Of the portfolio, there is investment in another 19.9%, Luxembourg (2.25), United Kingdom (2.1%), Mexico (1.5%) and France (1.3%).

Regarding the distribution by issuer, we see a percentage higher than 20% in Treasury Bonds and high yield (HY), also in investment grade corporations, emerging market debt in hard currency and emerging quasi-sovereigns, among others. The Average credit rating of the portfolio is A-, with a average duration of 5.15 years and a yield to worst of 4.15%:

a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

The bottom consistently ranks between the first and second quartiles for profitabilityAs a result of the strong and experienced team he has, despite the recent retirement of Doug Peebles. The fund is managed with a barbell approach, which has allowed an adequate balance between positions (selected bottom-up) and risk taking, bearing fruit in the different cycles, as shown in the following table, and with very controlled volatilities, and what makes it a fund 5 Morningstar Stars:

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a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

It is a good alternative for investors who like to receive income (around 5% per annum), a trustworthy and stable manager in the teams and in the investment process, with appropriately diversified portfolios and with a profitability / risk balance.

AB International Health Care: Global equity thematic fund, which invests in the health sector, but not only in pharma but in the entire health chain, both in diagnostics, robotics / minimally invasive therapies and technology. Invest in sustainable companies with high financial quality, with high ROE and, at the same time, a high quality of balance sheet and generated profits reinvested in the company. The main manager of the fund, Vinay thapar, has more than 20 years of experience in the industry and about 10 years in AB. Have Citywire rating + Meanwhile he fund reaches 5 Morningstar stars and the 5 globlos maximum of carbon gauges also from Morningstar.

The fund performance has been very consistent in the time, beating the MSCI World Health Care index in all periods, which speaks of its strict investment process and proper selection of securities. In addition, a positive profitability / risk binomial can be observed, since it reaches and even exceeds the average profitability of its competitors assuming less volatility.

a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

The fund reaches 1,742.66 million dollars at the end of April, invested through 43 positions, with a active share of 63%. Among the main 10 positions (which represent 47.88% of the fund) are UnitedHealth Group, with almost 9.3% of weight and which in the year has risen around 17% and more than 40% in one year; also the pharmaceutical companies Roche, Novo Nordisk, Pfizer and Zoetis; as well as the North American biotech Amgen with almost 5.3%, among others.

The sector pharma weighs almost 29%, however, 22% for health equipment and almost 20% for biotechnology. And regarding the geographic exposure, the US represents more than 50% of the portfolio, followed by Denmark and Switzerland. The fund maintained 4.72% in liquidity.

a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

AB Sustainable Global Thematic: And as it could not be missing, a more diversified thematic alternative than the previous one, and with a strong social and environmental focus, based, like the previous ones, on a company selection process, combining financial factors with adequate management according to the SDGs of The United Nations. ESG factors are integrated throughout the investment process.

As commented Daniel roarty, CIO of Thematic and Sustainable Equities, “Sustainable investment is a competitive advantage, companies linked to sustainable investment challenges have great financial opportunities, creating attractive strategies for investors.” There are 169 goals found in the 17 SDGs, so the investment process is based on analyzing in which of these 169 goals there is potential for private capital. They think there is three major blocks for private capital: climate, health and empowerment, and based on this they analyze companies that must both adjust to a theme and long-term performance, building a high-conviction portfolio made up of a total of 59 positions, and where 10 largest weigh 23.77%. Clearly the fund has a growth bias, with low dividend yield positions but high momentum and quality.

Regarding the sectoral distribution, information technology represents more than 30%, while healthcare and industrials almost 20% each, followed by industrial and finance. The geographical distribution, even though the US weighs slightly more than 60%, it is very diversified between developed and even emerging countries.

a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

The benchmark is the MSCI All Country World Index, but clearly the fund is agnostic to the index as its active share is very high – 91%that together with a concentrated portfolio speaks of the confidence of the management team to generate alpha, and this is demonstrated by the historical results, where the class in dollars (base currency of the fund) consistently beat your index in most periods. Morningstar gives it 4 stars and 4 globes for carbon indicators, which is very favorable. The fund’s assets amount to about $ 2,868 million at the end of April.

a very consistent and profitable ménage à trois

a very consistent and profitable ménage à trois

Of the three options analyzed, I would keep the last fund as the main part of a dynamic portfolio since it is a multi-thematic fund and that in a way it can include the theme of the second fund. However, I would include (in a lower percentage) the first fund to reduce portfolio volatility and help my portfolio in stressful market situations. My profile is riskier and I overweight equities over fixed income.

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