Henriette Le Mintier & Guillaume Fradin introduce us to the LBPAM ISR Absolute Return Credit fund
24 MAR, 2025
By Jose Luis Palmer from RankiaPro Europe
Through combination of diversified and complementary performance sources, the portfolio management team attempts to generate positive returns controlled by a strict risk framework.
Investment approach is based on 4 pillars: to focus on resilience of the investment process over market cycles, an active management for quick adaptation to market trends, a strict risk management and diversification. This aims to provide a flexible exposure on bond markets, with diversified and uncorrelated performance drivers.
The team uses a wide range of 8 sources of alpha: for instance, “Primary premium”, “Credit arbitrage” or “Carry”…
The fund integrates LBP AM in-house ESG rating score “GREaT”- sustainable Governance, Resource management, Energy transition, local Territories development.
In this interview, Henriette Le Mintier and Guillaume Fradin, managers of the fund, tell us about the main features of this cutting-edge investment strategy.
How would you define the LBPAM ISR Absolute Return Credit fund?
In few words, we could consider LBPAM ISR Absolute Return Credit fund as a “all-weather” fixed-income solution. The flexible approach of portfolio management team allows to explore a very broad investment universe on bond markets. Through combination of diversified and complementary performance sources, the portfolio management team attempts to generate positive returns controlled by a strict risk framework.
What is the fund's investment philosophy?
Our approach is based on 4 key pillars: to focus on resilience of the investment process over various market cycles, an active management for quick adaptation to market trends, a risk management in every stage of the process and diversification. This philosophy aims to provide a flexible exposure on credit bond markets, built on wide leeway’s, diversified and uncorrelated performance drivers.
What is the portfolio composition, and how is it diversified?
Diversification is one of the key successes of the fund: we try to identify and combine diversified strategies to immunise the portfolio from market conditions. We try to lower the drawdown and we try to catch the rebounds. To minimize idiosyncratic risk, we have an important diversification of around 150 issuers in the portfolio.
As of the end of February, we had lowered the risk of the portfolio considering the landscape as cloudy. To protect the good YTD performance, we had reduced the credit sensitivity of the fund by selling bonds, with a focus on AT1 and High Yield investments (at 33%) and added derivate protections. The credit sensitivity is around 2,5 (coming from over 3 mid-January). The rate sensitivity level was lowered at around 1,8 (coming from over 2,5 mid-January).
What key characteristics set this fund apart from others in the same category?
We have set up a unconstrained approach, very useful to permit authentic flexibility. We use a diversity of market instruments such as IG/HY credit bond, floating rates, futures and options, swaps and CDS, or subordinated debts, with important leeway’s (-3/+3 rate sensitivity and -6/+6 credit sensitivity). We use them in a wide range of 8 sources of alpha: for instance, “Primary premium”, “Credit arbitrage” or “Carry”…
Moreover, risk budget management is at the heart of our investment process. VaR monitoring is included at each step of the fund management, as the max VaR constraint is an important objective of the fund. The fund is only SRI 2, with an annual volatility of 1,32%. We are managing our fund with a cautious approach.
Other key characteristic, the fund integrates LBP AM in-house ESG methodology, “GREaT”. Focused on 4 pillars - sustainable Governance, Resource management, Energy transition, local Territories development - 13 criteria and 76 indicators, this ESG rating score allows us to get a strong extra-financial assessment for each bond issuer, Govies and corporates.
These features and our experienced portfolio management team, 2 portfolio managers and 5 dedicated desk analysts, contributed to exhibiting a long and proven track record.
The fund has outperformed its benchmark in 2023 and 2024. What has been the formula for its success?
First, the credit and rate sensitivity management were the main drivers. The fund used its wide leeway's to adapt the risk profile.
Then, diversification and decorrelation. The ability of our portfolio management team to identify and combine real complementary strategies, contribute all together, or one after other, to performance.
How does the fund take advantage of the opportunities in the current financial and economic landscape? And how does it minimize risks?
Uncertainty increased in the first quarter, with geopolitical shift of the United States. Faced with the risk of volatility on fixed income markets, we maintain high level of diversification and flexibility.
The diversification on European IG credit names was positive to the fund, as this segment is benefiting from the German stimulus plan, like the exposure on the UK rate curve, less impacted by the current market volatility. We still like this IG credit segment, with strong fundamentals and favourable markets technical.
Our different hedge in the portfolio, such as Itraxx main CDS, curve steepening, Govies spread also helped to maintain the good YTD performance. Credit basis trades, bond versus CDS, are a way to diversify exposure with low market correlation.
As the fund has leeways on its rate sensitivity, we will remain active and flexible on this strategy. For the moment, we still think that ECB and FED have 2 cuts ahead, but further apart than before. So, we can benefit from the current yield on the market. While benchmark funds suffered in high volatility markets, our Absolute Return Credit fund has proved its ability to deliver positive performance through a strong agility and a strong capacity to adapt quickly.
What role does the fund play within an investment portfolio?
The fund can be a good investment tool to be exposed in a flexible way to credit market, with low correlation to IG market, with a low volatility profile and a proven track record.
Disclaimers :
LBP AM's information, data and opinions are provided for information purposes only and do not constitute an offer to buy or sell a security, investment advice or financial analysis. Past performance is no guarantee of future performance.
The opinions expressed in this document relate to LBP AM’s market projections at the time of publication. These projections may change in accordance with market conditions and in their regard LBP AM accepts no liability under any circumstances.
Investing in financial markets involves risks, particularly the risk of capital loss.
For more information on the funds’ features, risks, and fees, please read the regulatory documents – prospectus available in English and French, KIID in your country’s official languages – available on our website, www.lbpam.com.
The decision to invest in the fund should not be based solely on a fund's extra-financial approach but should also take into account all its other characteristics, particularly its risks, as described in its prospectus.
The information relating to the process is provided for information purposes only and is not a constraint mentioned in the prospectus, in particular: 1. this estimate may change over time and is not a prospectus figure The quantitative filters applied to the investment universe and mentioned may change over time. 3. With possible derogations for certain stocks for ESG integration funds, with the approval of the Ethics Committee. No stocks are currently subject to a waiver.
Portfolio distributions are provided for information only, and may change over time.
The management team may change over time. For more information on the composition of the team: www.lbpam.com
