Addressing risks that currently concern bond investors
Something that investors are currently uncomfortable with is the risk and reward on offer in core bonds, which is why they are looking to diversify. Allianz US Short Duration High Income Bond is suitable for investors who have a risk tolerance similar to core bond funds – slightly higher than sovereigns. The fund’s objective is to achieve superior risk-adjusted returns, while the primary emphasis is on capital preservation, followed by a focus on generating high current income.
Protection and yield
The fund is a defensive building block consisting of long-only cash bonds, with an appealing return that does not increase the risk of the overall portfolio. The fund is able to capture 70% of the return of the high yield market throughout the market cycle, while taking less than a third
of the risk of the high yield market.
Truly global coverage
The fund management team is mindful of the three main risks for fixed income investors:
- Credit risk (risk of a security defaulting)
- Interest rate risk (which has been positive on bonds in the past couple of years)
- Liquidity risk (ability to sell the bonds).
A very concentrated portfolio
The fund management team would not be willing to invest in a risky business model simply to try to generate a higher return. They select businesses that can survive the full business cycle – and there are always high yield businesses that do, even in draconian times when 10% of the US high yield market defaults.
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"The strategy should not be seen as a vehicle to gain exposure to the broad high yield market. Instead, it should be regarded as a core defensive building block." Jim Dudnick, Fund Manager Allianz US Short Duration High Income Bond |
A highly experienced team
With 18 years of investment experience on average, the fund management team is dedicated to this strategy. Credit specialists focus on industry selection and bottom-up, fundamental analysis. The strategy invests in a concentrated portfolio of “high quality” high yield bonds with maturities of typically five years or shorter. Portfolio duration is targeted between 1.5–2 years and a weighted average life of 3.25–3.75 years. Liquidity is addressed with an average issue size of approximately USD 750 million. Capital preservation and limiting downside volatility are managed with a rigorous credit research process and by concentrating investments in less cyclical industries on the front end of the curve.
The strategy holds bonds issued by companies domiciled in the USA or guaranteed by US companies with an average credit quality of B1/BB-.
Fund details, opportunities & risks
Allianz Global Investors and Voya Investment Management have entered into a long-term strategic partnership, and as such, as of 25 July 2022, the investment team has transferred to Voya Investment Management. This will not change the composition of the team, the investment philosophy nor the investment process.
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested.
Investing in fixed income instruments may expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including positions with respect to short-term fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values of these instruments are generally expected to rise. Liquidity risk may possibly delay or prevent account withdrawals or redemptions. Allianz US Short Duration High Income Bond is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The value of the units/shares which belong to the Unit/Share Classes of the Sub-Fund that are not denominated in the base currency may be subject to an increased volatility. The volatility of other Unit/Share Classes may be different and possibly higher. Past performance does not predict future returns. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or specific needs of any particular person and are not guaranteed. The Management Company may decide to terminate the arrangements made for the marketing of its collective investment undertakings in accordance with applicable de-notification regulation. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the management companyAllianz Global Investors GmbH in the fund’s country of domicile, Luxembourg, [the Swiss funds’ representative and paying agent BNP Paribas Securities Services, Paris, Zurich branch, Selnaustrasse 16, CH-8002 Zürich - for Swiss retail investors only] or the editor either electronically or by mail at the given address or regulatory.allianzgi.com. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors (Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH. The Summary of Investor Rights is available in English, French, German, Italian and Spanish at https://regulatory.allianzgi.com/en/investors-rights. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.