Amid concerns over higher inflation and rising rates, credit investing remains a viable option. In this article, Wellington partnered with Endowus to guide investors through the finer points of credit investing. Investors can learn how investing in credit differs from equity investing, and understand what the yield on different bonds represents. They can also find out how they should look at credit investing in a rising-rate environment, and learn why investing responsibly through fixed income can be done without sacrificing a reliable income stream.
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Flexible allocation Seeks to deliver a higher-yielding credit blend, capitalising on the multi-sector credit expertise from our portfolio managers |
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Income Oriented Focus on higher-yielding assets to target an attractive level of income, which is managed to minimise dividend fluctuation |
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Research-driven approach Investment process leverages the breadth of Wellington’s fixed income platform to integrate specialist insights into the portfolio |
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Enhance return potential Diversified sources of return from strategic allocation to higher-yielding sectors and opportunistic positions in niche sectors |
Get started with the Wellington Credit Income Fund on Endowus Fund Smart.
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Why Wellington Credit Income Fund
Endowus has selected the Wellington Credit Income Fund for its robust portfolio that allocates into fixed income instruments from various sectors such as government, corporate credit, and securitised (e.g. asset-backed or mortgage-backed securities), with the aim to maximise total returns. While this can translate into a key portion of the portfolio being invested into higher-yielding sectors such as Global High Yield and even Emerging Market (EM) debt to provide yield pickup, the underlying issues are primarily denominated in USD, and the final portfolio maintains an overall investment grade quality.
Wellington’s unique investment model is often described as a “community of boutiques”, where the firm is composed of multiple different teams that have the liberty to make their own investment decisions without being subject to a single “house view” on the market. This approach is what enables the Fund to be managed a dynamic sector rotation strategy, where the three Co-PMs, Campe Goodman, Rob Burn, and Joe Marvan, collectively specialise in the formulation of top-down views to decide which sectors to invest into, and constantly tweak the portfolio to make sure that it is capturing what they believe is the best prevailing opportunity in the market in terms of duration and yield-curve decisions. Bottom-up considerations also contribute to the composition of the Fund, and the PMs also work closely with Wellington’s sector analysts to select the instruments in a given sector.
The typical final portfolio will include around 500 instruments with the highest allocations to high yield, followed by EM debt and structured instruments, and investment grade and developed government debt to provide a balanced, high-returning exposure. The portfolio’s duration tends to skew on the longer end, spanning anywhere between 2 to 6 years.
The three PMs have an average experience of more than 25 years, and have a decade of experience in managing the Fund’s strategy since 2012 through a US mutual fund vehicle, which was incepted in 2007. Although the UCITS version of the strategy (named Wellington Credit Income) was only launched in 2021, we take confidence in the proven track record of the older version of the strategy, and from the fact that the same PM team and investment approach are being used in managing the UCITS version as well.
Historically, the US vehicle has consistently placed itself on the top of its peer group in terms of performance, and has generated a fairly consistent level of payouts that has been derived primarily from natural income, rather than tapping into capital. However, with that being said, the Fund has tended to underperform during periods of credit market weakness. Additionally, due to the Fund’s focus of generating high income, its risk metrics such as volatility also tends to be on the higher side, and therefore, we recommend the Fund to investors who are seeking higher returns, while being prepared to embrace the higher risks that accompany such focus.
The Wellington Credit Income Fund is available on Endowus Fund Smart.
About Wellington Management
With USD 1T+ in assets under management, Wellington Management is one of the largest independent investment management firms in the world — covering equity, fixed income, alternative, and multi-asset investments. As a private firm whose sole business is investment management, Wellington serves as investment adviser to over 2,400 clients in more than 60 countries.
*All figures as of 31 December 2021
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