Fitch Places BlueBay IG Bond Fund's 'Excellent' Fund Quality Rating 'Under Review'
KEY RATING DRIVERS
The fund has underperformed its benchmark and peer funds over the past 12 months, after a weak Q315, mainly due to its duration and credit positioning. Year ending October 2015, the net performance of the fund (B EUR Perf share class) was - 1.16% compared with a benchmark (iBoxx Euro Corporates TR) of -0.53% and ranks in the fourth quintile in Lipper's Bond EUR corporates category.
Fitch previously highlighted that continued under-performance against benchmark and peers would put the fund's rating under pressure (see 'Fitch Affirms 4 BlueBay IG Funds' Quality Ratings' dated 10 August 2015 at www.fitchratings.com).
As at end-October 2015, the fund only partially meets Fitch's criteria for benefiting from the positive performance adjustment that allows it to achieve the 'Excellent' rating. The fund is now a median performance in its category over three years. It now underperforms its benchmark over three and five years. However, it remains first and second quintile over five years and since launch and outperforms its benchmark since inception, in line with Fitch's expectations for this rating.
The fund's rating continues to reflect a stable research-driven investment process, allowing an effective exploitation of diversified sources of fixed income returns within a well-defined risk-control framework. The rating is also supported by the depth of BlueBay's stable, dedicated fixed income resources and a superior long-term track record of 12 years.
Fitch expects to resolve the "Under Review" status of the fund after six months. The agency will closely monitor the performance of the fund during this period to determine whether the recent underperformance reflects a temporary setback or a structural deterioration in the capacity of the fund to achieve its objectives and outperform peers in the long term. In Fitch's opinion, a consistent outperformance of a credit fund of this size in the current market conditions suggests an effective implementation of high conviction alpha trades, in line with BlueBay's investment philosophy, under growing capacity and liquidity constraints.
Specifically, Fitch will likely affirm the fund's 'Excellent' rating, if over the next six months, the fund outperforms its benchmark (net of fees) and ranks in the first or second quintile against its category and shows the attributes of a "Strong" track-record, as defined in Fitch's criteria. However, if any of the three conditions above is not met, Fitch will downgrade the fund.
BlueBay IGBF is a sub-fund of a Luxembourg Part I SICAV and is UCITS IV-compliant. Launched in November 2003, it is BlueBay's IG flagship and the largest Euro IG Bond fund globally, with EUR7.7bn of assets as of end-October 2015. The fund aims to generate an annual 150bp above its benchmark (iBoxx Euro Corporates TR), gross of fees, which is consistent with a 3% maximum tracking error.
Founded in 2001 and owned by the Royal Bank of Canada (AA/Stable/F1+), BlueBay Asset Management is a specialist credit asset manager with assets under management of USD58.1bn as at end-September 2015 (of which USD 29.3m were in IG sovereign and non-sovereign credits).
The rating may be sensitive to material changes in the investment or operational processes or resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating driver could result in a downgrade. For example, this may be manifested in significant structural deterioration in the fund's performance due to its size, wrong credit and duration positioning, a loss in credit selection skills, or inability to meet redemption pressures. Fitch sees limited key person dependency given the depth of the IG team.