GAM Star Credit Opportunities

This is a high-income bond fund with a unique strategy. The idea is to invest in the ‘junior debt’ of investment grade companies. This allows the fund to generate a good income, whilst still keeping a high-quality portfolio. GAM Star Credit Opportunities fund is heavily invested in the debt of financial companies, as this is where the best opportunities often lie. It has a low turnover strategy, as the managers' process looks for bonds they can buy and hold. The funds’ higher yield reduces its interest rate sensitivity versus many of its peers, which can be particularly valuable.

Our opinion

The team benefits from an open and communicative culture that fosters frequent challenging of ideas. Their process for determining a company’s credit worthiness is stringent. GAM Star Credit Opportunities is a very successful fund, run by a team who have many years of experience between them.

Fund manager

GAM Star Credit Opportunities fund is run by Anthony Smouha and Gregoire Mivelaz, who have more than 50 years’ of investing experience between them. They have managed this fund since its launch in July 2011. The team was further strengthened when Patrick Smouha became a co-manager in 2018 and Romain Miginiac in October 2023. They share a passion for what they do, which is evident when talking to them, and a willingness to always keep learning.

Anthony Smouha

People overcomplicate the bond world. We look for the simple themes and credits and leave advanced mathematics to others. Elementary compound interest comes from solid companies and a good yield. This means asking the right questions.

Anthony SmouhaFund manager

Investment process

The managers prefer investment grade companies but also like junior or subordinated debt. Junior debt is debt that has a lower priority for repayment than other debt claims in the case of a company default. They believe the chances of investment grade companies defaulting is low, but they still benefit from the high coupon of the higher yielding junior debt.

Many of their best opportunities are found in the debt of banks and insurance companies. The team believes the higher capital buffers enforced by regulators has made these businesses much safer. GAM Star Credit Opportunities fund is mostly a buy and hold strategy, which helps to cut down on transaction costs. It typically has between 130 and 200 holdings. Around 70% of these holdings will be core, providing some income and capital preservation. The remaining 30% will provide high income and diversification.

ESG

ESG - Integrated  

ESG is integrated within this fund’s process as part of the comprehensive bottom-up stock analysis. There is a framework form incorporating specific factors which the manager follows, informed by the Sustainability Accounting Standards Board (SASB) Materiality Map. This identifies sustainability issues that are most likely to create a financial impact on the company’s operations, and whether this will have an impact on the future share price. A lot of this work will be incorporated into determining the cost of equity for the company, to give a full understanding of the potential cost to the company and the impact on the stock’s valuation. The result of this work is displayed prominently on the front of the investment template for any stock. The fund may not exclude all companies that investors may consider ‘ESG negative’, however. The analysis is done on a case-by-case basis and determines whether the ESG issues are material, whether they will have an impact on the firm, and whether the firm is looking to improve on any issues.

Risk

Risk control starts with the managers' goal of finding long-term holdings in sound companies with low default risk. If there is a fundamental change they will assess and, if necessary, cut the position. They have their own risk analysis, which is run daily, as well as input from the GAM risk team.

GAM Star Credit Opportunities fund has a heavy bias towards financials which means that it can be volatile relative to its peers, particularly in times of market stress. However, short term volatility should not affect the ongoing income payments the fund receives, as long as their fundamental analysis is correct.

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