Staying vigilant in Buy and Maintain credit portfolios

Buy and Maintain strategies can offer investors many of the same benefits of more traditional active funds, while avoiding the pitfalls of passive investing.

What are the key differences between Buy and Maintain and more traditional active strategies?

This article was produced by AXA Investment Management as part of their valued industry partnership to Insurance Investor

Buy and Maintain credit portfolios are often - and wrongly - thought of as being sleepy, ‘set-and-forget’ investment vehicles. But this is not the case; they are very much actively managed strategies with a long-term focus.

Their low-to-moderate turnover can still potentially yield many of the same benefits of more mainstream active funds and can simultaneously help investors avoid the pitfalls of traditional passive credit management.

Below we look at the benefits of active management, explain the key differences between Buy and Maintain and more traditional active strategies and look at how investors can ‘get active’ in Buy and Maintain.

The benefits of actively managing portfolios

Our recent paper outlined the primary benefits of Buy and Maintain investing in credit, which include:

• The potential to help overcome the pitfalls of traditional passive credit investing by avoiding the inherent inefficiencies from the fixed index constituents (being forced sellers of downgraded bonds) and index construction - overexposure to bonds and sectors with the most debt outstanding)

• Actively monitoring and, critically, amending risk exposures over time in anticipation of long-term trends, or in response to short-term movements. In traditional passive strategies, the only quality control is delegated to third-party credit rating agencies

• The ability to integrate responsible investment considerations to achieve investors’ financial and non-financial goals, such as net zero, biodiversity or social factors

Active management, either through a Buy and Maintain or a ‘full active’ strategy, allows investors to design their portfolios in a bid to avoid bonds which could be downgraded; manage the exposures of any downgraded bonds; and to continuously amend these exposures over time.

Additionally, active credit management also enables investors to balance multiple objectives and achieve a blend of the above benefits rather than focusing on just one; furthermore, none of these benefits are offered by traditional passive investing.

We believe each of these aspects should lead to actively managed credit strategies either outperforming passive credit strategies or performing in line with a lower amount of risk.

How does Buy and Maintain differ from 'full' active credit management?

Buy and Maintain strategies are actively monitored and managed, which is important in terms of delivering both investors’ financial and ESG considerations. However, Buy and Maintain strategies should still be distinguished from ‘full’ active strategies, although we recognise the lines are often blurred. We outline key differentiators in this article.


Read the full article by clicking here.