Buy and Maintain Credit
What is Buy and Maintain?
A ‘buy and maintain’ credit strategy can be an effective way for long-term bond investors to gain exposure to the returns generated from a broad, diversified portfolio of investment grade bonds, in a less volatile, low-cost way. Far from being a passive strategy, however, it requires active management decisions about which bonds to buy and which to avoid and, importantly, it requires continuous active maintenance of key risk and return factors. This is primarily achieved using natural cashflow derived from income and the regular return of principal from maturing bonds, assuming there are no defaults.
Read more about the key reasons for investing in ‘buy and maintain’ credit strategies here.
Why invest in a Buy and Maintain Credit strategy?
Designed explicitly to address clients’ growing frustrations with both the high cost of active credit management and the inefficiencies of passive index-tracking, Buy and Maintain Credit strategies combine the best of both worlds – the skill and added-value of active credit selection and monitoring, and the low-cost edge of passive management.
Figure 1: Transaction costs are rising relative to yield
Source: AXA IM and USB Delta as at 31/07/2017
The natural low-cost alternative to this has historically been passive management. The drawbacks of such approaches are however well-documented (i.e. poor diversification, over-allocation to the most indebted issuers, and performance leakage through blindly following inefficient rules) and make little sense in the world of corporate bond investing, where returns are asymmetric. In this environment, low turnover Buy and Maintain strategies have become increasingly attractive.
Why AXA IM Buy and Maintain Credit?
- Diversified exposure to the investment grade bond market
- Conservative positioning designed to mitigate downside risk
- Lower cost and less performance leakage from lower turnover
Sharing the same long-term, low turnover philosophy focused on downside risk mitigation, we have a range of Buy and Maintain funds that all offer access to a global opportunity set via three different investment grade credit markets.
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