Man GLG Sterling Corporate Bond

Investment process

There are three main elements to the investment philosophy of the Man GLG Sterling Corporate Bond fund. First there is the margin of safety. The team works hard to find what it believes to be undervalued bonds whose yield greatly overstates the risk of the company defaulting – or not being able to pay its creditors. This is achieved through intensive credit research and a deep dive into a company’s financials and cash generation.

The second element is ‘alpha not beta’, which means the fund is very actively managed. Each company in the portfolio has a self-help story which is typically uncorrelated to the wider macroeconomic picture. The focus on idiosyncratic ideas also helps from a risk management point of view, as there tends to be less correlation between the different holdings. The fund aims to outperform in rising and falling markets.

The third element is ‘small is beautiful’. The investment grade bond index is heavily concentrated with 10% of the issuers accounting for 50% of the index by size. Large issuers tend to have a worse risk/reward as they are often highly levered and have lower yields. This fund’s emphasis is on small and medium-sized issuers, which may be less understood by peers and can often deliver a much better risk/reward.

Man GLG Sterling Corporate Bond fund has between 80 and 120 issuers and invests globally, although typically half the bonds in the portfolio will be sterling denominated. Up to 20% of the fund can be invested in high yield bonds, but it usually has a low teens weight to this part of the asset class. Given the importance of medium-sized and small issuers to the fund, it will always be a relatively small fund to allow the manager the flexibility to trade in and out of positions.