Why fixed income and parkour have more in common than you might think.
In parkour, the free-running sport that sees athletes using urban landscapes as their training ground, proponents take a go-anywhere, use-anything approach.
A row of garages? Handstand-spring over it. A bus shelter? Vault and somersault to the opposite pavement.
Their ability and agility in tackling everyday objects and obstacles in a series of smooth transitions, has made many of them YouTube sensations. Their strength, discipline and eye for opportunity has put the sport apart from traditional gymnastics and athletics.
While less likely to be a viral internet smash, unconstrained fixed income managers operate in the same way.
Their approach of going anywhere and using any type of instrument means they look for opportunities where others may prefer to take the well-trodden route with the rest of the crowd.
We believe that only by delving deep into a manager’s strategy can an investor truly understand which path they are likely to take
While undergoing the same level of training as their traditional peers, both parkour athletes and unconstrained managers need to be able to use their strength and agility to flex and seize opportunities as they present themselves.
The difference between the two is that should a parkour athlete stumble, they have just themselves to injure – for an unconstrained fixed income manager, there is more at stake.
So, investors looking to take on one of these managers, need to first understand how they are different from the rest of the field, but also test they are not just showboating for the crowd.
We believe that only by delving deep into a manager’s strategy can an investor truly understand which path they are likely to take. While an investor might be impressed by their manager backflipping over a certain issuance or sector, they should not be surprised to see them do it and they must understand why they did not follow everyone else.
This dive by an investor into an unconstrained portfolio should also show exactly what the manager holds, in terms of factors sectors and geographies, to avoid duplication of risk with other parts of a portfolio and allow proper diversity.
The investor must also understand the liquidity profile of any unconstrained fund – you do not want your manager to execute a perfect triple flip into a basement, only to be stuck there. They must also be able to measure the performance of a manager if they are not going to use the traditional benchmark of a perfect 10 or sub-two hour marathon.
Finally, investors must consider the pedigree of their manager and their available resources. Is this their first cycle, have they done enough in-depth research about what lies ahead – or have they taken on too great a task?
Like fixed income investing, when parkour goes well, it is spectacular and rewarding. Similarly, those signing up with an unconstrained managed need to acknowledge and recognise the agility and ability that is needed by those carrying it out to succeed.
By Mark Dowding, Chief Investment Officer, BlueBay
Issued in the United Kingdom (UK) by BlueBay Asset Management LLP (BlueBay), which is authorised and regulated by the UK Financial Conduct Authority (FCA). BlueBay is also registered with the US Securities and Exchange Commission (SEC) and is a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In the United States it may be issued by BlueBay Asset Management USA LLC which is registered with the SEC and NFA. In Japan by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Switzerland by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. In Germany BlueBay is operating under a branch passport pursuant to the Alternative Investment Fund Managers Directive (Directive 2011/61/EU). The registrations and memberships noted
should not be interpreted as an endorsement or approval of any of the BlueBay entities identified by the respective licensing or registering authorities. Information herein is believed to be reliable but BlueBay does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. No part of this document may be reproduced in any manner without the prior written permission of BlueBay. ® Registered trademark of Royal Bank of Canada. RBC Global Asset Management is a trademark of Royal Bank of Canada. Copyright 2019 © BlueBay Asset Management LLP, registered office 77 Grosvenor Street, London W1K 3JR, England, partnership registered in England and Wales number OC370085. All rights reserved.