What are Investment Grade bonds?

Investment grade bonds are fixed income securities issued by companies with a medium or high credit rating from a recognised credit rating agency, which are considered to be at lower risk from default than those issued by companies with lower ratings.

Bond investors face ‘asymmetric risk’ when making investments, in that the expected loss associated with a company defaulting on a bond is typically greater than the expected return on the security should the company repay the debt as planned.

Investment grade bonds are those rated BBB- or higher by at least two recognised credit ratings agencies, the biggest three of which are Moody’s, Standard & Poor’s and Fitch (bonds rated lower than BBB- is considered ‘speculative grade’). IG bonds achieve higher ratings because they are deemed to be at lower risk of default, meaning investors are typically prepared to accept lower yields for holding this debt than for lower rated bonds from riskier companies.

As such, strategies that keep a core allocation to investment grade securities can expect a smoother risk and return profile than those focused on the potentially higher capital gains associated with lower rated bonds.

It is important to note that TwentyFour does not rely on the judgment of external ratings agencies to determine whether one bond is riskier than another. Portfolio managers conduct their own rigorous credit analysis on every potential investment, regardless of the company or bond’s rating.

TwentyFour’s investment grade strategies are designed to be held as a core fixed income allocation that can deliver steady, repeatable returns throughout the economic cycle.

TwentyFour’s closed-ended funds cover a range of innovative strategies investing in less liquid and higher yielding opportunities across the debt spectrum.

These funds target more specialist asset classes where we believe the firm’s fixed income expertise can add particular value and deliver higher potential returns.

They enable investors to gain exposure to markets such as UK mortgages, direct lending and less liquid asset-backed securities and high yield bonds, which can be less suited to the daily liquidity provisions of mutual funds.

Our Sustainable funds are designed to reward bond issuers that demonstrate sound Environmental, Social and Governance practices, while penalising those that don’t.

These funds deploy a negative screen that rules out all the sectors investors concerned with sustainability would expect – alcohol, tobacco, gambling and so on – but then crucially add a positive screen with a minimum threshold for our ESG score. Our research has shown that with this proprietary mix of positive and negative screens, which we have tailored to the specific challenges of sustainable investing in fixed income, our investors don’t need to sacrifice returns in order to pursue sustainable objectives.

Learn more about our approach to Sustainability

TwentyFour’s Multi-Sector funds aim to deliver superior risk-adjusted returns throughout the cycle.

They are actively managed, high conviction, unconstrained funds. This allows the portfolio managers to target fixed income opportunities across the global universe of bonds, and dynamically adjust asset allocations to suit evolving economic conditions.

We manage these portfolios independent of any market indices and with a strong focus on relative value, looking to provide investors with an attractive level of income alongside opportunities for capital growth.

Our investment grade funds aim to deliver consistent risk-adjusted returns by limiting their investment universe predominantly to securities deemed to be higher quality and at a lower risk of default.

Portfolios are managed against a reference index or with a defined target return. The team’s high conviction approach is heavily based on managing risk and limiting volatility, while targeting relative value by geography, sector and security to deliver alpha for the portfolio.

Funds invest predominantly in investment grade, fixed rate bonds, though portfolio managers have the ability to make limited allocations to high yield bonds and asset-backed securities (ABS), if they feel prevailing market conditions mean they are required to deliver on the mandate.

The fixed income specialists

We are specialists in fixed income, headquartered in the City of London and a boutique of the Swiss based Vontobel Group. Since our inception in 2008, we have built a strong reputation for performance, expertise and innovation in our chosen sector.

Why invest?

ABS at a glance

What are Asset-Backed Securities?

Asset-Backed Securities (ABS) are a type of bond, typically issued by banks or other lenders.

What makes ABS different to other parts of fixed income, such as government or corporate bonds, is that they are ‘secured’ against a specially designed pool of loans with similar characteristics.

This collateral pool will typically contain thousands of high-quality loans such as mortgages, and the repayments on those assets are directed straight to investors in the bonds.

This is where the phrase ‘securitisation’ comes from – investors’ coupons are secured by the cash flowing from the regular interest and principal paid on the assets included in the pool.

• Asset : Thousands of assets with regular repayments and similar characteristics, such as mortgages or car loans, are pooled together.
• Backed : The company issuing the ABS sets up a legally separated Special Purpose Vehicle (SPV), which purchases the asset pool. The bonds investors buy are backed by the interest and principal proceeds from the asset pool. This means bondholders’ exposure is to the assets themselves rather than the seller of those assets; in an RMBS, for example, investors have exposure to the mortgages but not the bank that made those loans to customers.
• Securities : The company sells bonds – or securities – via the SPV to investors, who are paid directly from the repayments on the assets in the pool.

At first glance, the ABS market can look like a confusing mix of acronyms (RMBS, CLOs, Auto ABS) but they simply identify the assets backing the bonds – residential mortgages, senior secured corporate loans, auto loans.

TwentyFour’s ABS funds cover the whole risk spectrum available, from enhanced cash to direct asset-backed lending. The breadth and size of what we manage enables us to leverage our relationship with both issuers and banks, which can offer potentially material benefits in yield and structuring for the investors in our strategies.  

Key members of the TwentyFour team are regarded as pioneers in European ABS, having been involved in the market since its first securitisations in the late 1980s. The team regularly advises European policymakers and is heavily involved in guiding the path for regulation in this sector. Accordingly, TwentyFour is one of Europe’s leading ABS managers.