Investment Philosophy

PGIM constructs and manages portfolios in the European Corporate Fixed Income Strategy based on the philosophy that bottom-up industry and issue research and security selection, including relative value trading, generate high information ratios and, when executed successfully, can provide sustainable excess return over a European corporate market benchmark.

We seek to capture several market inefficiencies in managing corporate portfolios. First, we seek to anticipate both positive and negative credit events before others do, through our large, internal credit research staff. We also try to cover a larger portion of the market than others, more comprehensively.

To do so, our corporate bond portfolio managers and analysts, based in the US and London, are organized by industry/region, fostering an in-depth knowledge of many companies, including ones not always followed closely by major brokerage firms. The members of our London-based team give us a strong market presence and knowledge of issuers within the European market. We also seek to capture aberrations in the yield curve, using proprietary modeling. Finally, we seek to capture inefficiencies driven by supply/demand and other technical factors, such as a dislocation in spreads among different maturity bonds of the same issuer.

Our corporate bond team has been consistently implementing their research-based, relative value philosophy for many years, including through 2000-2002’s credit cycle as well as the 2007-2008 credit crisis. Indeed, we have not changed our investment philosophy since we began managing corporate bond strategies for institutional clients several decades ago.

Buy and sell decisions are made by the portfolio managers using bottom-up fundamental and relative value analysis.

To manage risk, the Strategy’s allocations across the three major sub-sectors of the corporate fixed income market (industrial, utility, finance) are typically maintained at +/-15% of the benchmark weightings. We further manage risk by limiting the Strategy’s weightings in the underlying industries that comprise those broad subsectors (banks, brokerage, insurance, and non-captive finance within the finance sector, for example) to +/-5% their weightings in the benchmark.

Investment Process

1. Leverage firm resources to define the current global backdrop and risk appetite

2. Portfolio strategy and construction

Portfolio Strategy

Market strategists provide macroeconomic assessment, senior investment professional assess market environment and recommend sector allocations, and portfolio managers actively analyze benchmark

Research

Research teams conduct intensive in-depth evaluation of all issuers in the universe with expertise across all areas:

• Fundamental
• Structured
• Quantitative

Relative Value Analysis

Portfolio managers evaluate and maximize relative value among approved universe:

• Choose regions & countries that reflect macro perspective
• Choose fundamentally strong credits with best relative value

3. A rigorous process is employed to monitor risk at all levels