Insight’s high-yield investment process can be simplified as ‘picking the right companies’. The team generates most of its alpha through global bottom up ‘best-ideas’ approach with the belief that strong company fundamentals are the key driver of long-term performance. Insight’s seasoned team of portfolio managers and credit analysts have a long and successful track record of working together on our high-yield portfolios.
The first step is to narrow down the investment universe which consists of roughly 2,500 issuers. The analysts screen for the following characteristics: companies that are best in class irrespective of their jurisdiction; businesses that generate stable and predictable long-term cash flows; investments that generate free cash flow, enabling the company to de-lever.
Insight strongly believes in engagement with the investments, and any company that does not want to engage with Insight on a regular basis will automatically be excluded. They are very selective and exclude certain sectors such as ‘high growth’ or those issuers with a high risk of becoming obsolete, like for example, fashion and technology.
The team at Insight tends not to lend money to CCC-rated companies and avoids businesses with short track records and/or businesses run by unseasoned management teams. The team also tends to stay away from banks and insurance companies with higher regulatory risks than other sectors. Outside of these, Insight does not have any implicit sector biases with the bulk of sector allocation being a function of the issuer selection.
A typical high-yield portfolio consists of 70-80 names and the portfolio management team aims to generate attractive returns with a focus on income over the cycle and capital preservation while maintaining a lower volatility than the overall index.
The focus on limiting drawdown and minimising default is reflected in Insight’s long-term track record: in 2020, the team only experienced one default compared to 2019 for the global high-yield market; the annual default losses were 0.84 per cent over the past eight years compared to market losses of 2.07 per cent (Insight defines a default when a bond loses 50 points and not just when an issuer ultimately fails to meet its legal obligations).
ESG has been a significant part of Insight’s company analysis over the past 20 years- Gerhard Ulrich
ESG has been a significant part of Insight’s company analysis over the past 20 years. They have always focused on governance, which is incredibly important in analysing high-yield companies. Governance has also always been linked to environment (E) and social (S) aspects, although the focus has shifted more on the latter two in recent years.
ESG is fully integrated into the team’s process and they seek to partner with issuers who are peer group leaders, are having a positive impact or have a credible and measurable plan to improve their ESG profile.
Where companies are not rated by external data providers – a common occurrence in the high-yield market – Insight has a proprietary ESG survey that companies fill in and return. Ingisht always engages with the borrowers to let them know of any concerns that the process raises and to see what progress can be made.
Any issuer who consistently fails to meet agreed sustainability milestones or is worst-in-class with no plan to improve sustainability will be avoided.
Gerhard Ulrich is senior portfolio manager at Insight Investment Management Global Ltd. He also heads the team responsible for managing the Vilhena High Yield Fund.
The writer and the company have obtained the information contained in this document from sources they believe to be reliable, but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed.
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The Vilhena Funds SICAV plc is licensed by the Malta Financial Services authority and qualifies as a UCITS. Any investments in any of the funds mentioned herein plc should be based on the full details of the Prospectus, Offering Supplements and KIIDS , which documents may be obtained from the Company, Bank of Valletta plc branches and investment centres and other licensed financial intermediaries. BOV Asset Management is licensed to conduct investment services in Malta by the Malta Financial Services Authority. Source: Insight Investment Management (Global) Limited