July 5, 2017
No Fear of BB – Quantitative Early Warning System for Bond Investors
Since it is no longer possible to generate adequate returns in the European investment grade range, bond investors may have to switch to BB or worse. Because the default risk in this segment is significantly higher, efficient risk assessment and early warning tools are needed. AHP Capital Management GmbH recommends CreditEdge® from Moody’s, a mathematical system that has anticipated all major defaults since 1989.
Lars Hunsche of AHA Capital views the statement “No more risk-free interest rates, only interest-free risk”, which has been circulating for some time not as critical as some others. He also regards the rating categories BB, B, as well as the CCC segment as interesting opportunities. However, the avoidance of failures is crucial to achieve good performance. Here, it is essential that the model parameters are highly predictable in all phases of the credit cycle. The Moody’s CreditEdge® model, which is based on market data, has been very successful in this respect.
The concept has been in the market as Mayence Fair Value Bond Fund since the beginning of 2017, initiated by AHP Capital Management GmbH. North Channel Bank is responsible for portfolio management.
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