14 OCT, 2023
By Teresa Blesa from RankiaPro Europe
Mauro Ratto, Co-CIO de Plenisfer Investments (Generali Investments).
This week we had the opportunity to interview Plenisfer Investments’ Co-CIO Mauro Ratto, with whom we explored the challenges and opportunities facing the fixed-income market in these times of global economic uncertainty. Ratto offers valuable insight into the key tactics and forward-looking projections that drive Plenisfer’s investment decisions. Let’s find out what comes out of this conversation.
The normalization of interest rates and more resilient inflation than expected make fixed-income investing competitive with equities for the first time in the last 15 years. Although spreads are moderate, we believe the best opportunities lie in combining global credit risk with short and medium-term rates.
The risk assessment is based on an analysis of the fundamentals of the company, i.e. its business, and the sustainability of the debt, i.e. the company’s ability to generate cash flows that can repay it. The lower the credit quality, the more important it is to assess the liquidity of the company and the value of its assets. Equally important aspects are the corporate structure (does our credit relate to the holding company or the operating company) and in which part of the capital structure we invest (senior or junior bonds). The evaluation of the company’s assets aims to identify the level of security of our investment and the potential for recovery of our bond in case of debt restructuring or default of the company.
The analysis of the macroeconomic context, the analysis of domestic vulnerability (outstanding debt and fiscal budget), and external vulnerability (balance of payments, external debt, foreign exchange reserves) allows us to assess the “fundamentals”, of the balance sheet of a given country. It is an analysis that has many similarities to the one we do for the shares of an individual company.
Monetary policy, inflation rates, and growth data help define where we are in the cycle and therefore our positioning in terms of duration, yield curve positioning, and currency exposure. Macroeconomic analysis therefore allows us to diversify the portfolio in terms of geography, and it is also clear that macro analysis is complementary to the evaluation of corporate bonds at both the sector and security level.
European companies are a good investment opportunity. Highly creditworthy companies have quality balance sheets with moderate leverage and in particular, 2023 is an exceptional year for European banks. The spreads offered by the investment grade segment are modest, while the high yield segment offers attractive spreads, but exposes us to increasing default risk in the current end-of-cycle economic situation.
We therefore prefer the intermediate zone, i.e. straddling investment grade and high yield, and currently prefer to invest along the capital structure, selectively buying subordinated debt of investment grade issuers, especially in the telecom and energy sectors, which have strong cash generation profiles.
The inversion of yield curves, especially in the US, encourages us to focus on the short-term side.