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PGIM Fixed Income's European High Yield Bonds Strategy seeks to earn 125 basis points (bps) of alpha over ICE BofAML Euro HY ex-Finance 2% Constrained Index over a full market cycle.1,2 We expect tracking error based on historical volatility measured over a long term period to occur from holding position sizes in portfolios that differ from the issuer’s weighting in the benchmark and from holding positions in issuers that are not in the benchmark.
PGIM Fixed Income believes that actively managed European high yield bond portfolios, constructed from the bottom up using methodical, research-based sector, subsector and security selection, can lead to consistent outperformance versus the broad European high yield index. We focus on security selection which has proven to be a high information ratio activity, and we believe that duration, curve and currency bets in developed market sectors are lower information ratio activities and accordingly we spend no or a low percentage of the risk budget on these latter activities.
PGIM Fixed Income employs a disciplined, three-step investment process to manage European High Yield Portfolios:
1 There is no guarantee that these objectives will be met.
2 On average, over a full market cycle defined as three to five years.
No risk management technique can guarantee the mitigation of elimination of risk in any market environment.
Source: PGIM Fixed Income as of June 30, 2020.