Hi guys, thinking of moving from my sell side lev fin seat and have come across an IG Credit investing opportunity.
What are peoples thoughts on this, is it a dying form of investing? Can I move back to HY after a few years if I wanted to or will I be pigeonholed?
Have seen a couple posts saying it’s a good WLB exit but would love to hear from ppl with more experience!!
Much Love
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It is a bit slower than HY investing but there are degrees to it: an insurance company or mutual fund seat will be more buy-and-hold oriented while a hedge fund may be flipping new issues, taking on short-term relative value trades
what kind of firm is it?
It’s an interesting space since there are so many levels to it. It’s purely benchmark investing, so you’re trying to outperform an index with similar exposures. Supposedly it’s not as tough to outperform since the index is much broader than common equity indices and there’s no ETF to buy, so you select the companies in the index that you think will outperform. One of my credit professors in undergrad said something like 60-70% of IG PMs outperform the index.
Diving a level deeper, there’s also so much portfolio management to consider and it’s very macro/sector driven. In my fund, for instance, we aim to match benchmark key rate durations (since we aren’t making monetary policy/macro bets) and primarily try to make money with security selection and allocation between IG/HY/Treasurys. For an IG-only fund, you might take positions on individual securities, sectors, duration/key rate durations, ratings buckets, and more.
For many IG funds (like insurance), you also buy off the primary market, but you don’t often get heads up about when they’re issued so you could be covering a ton of companies and making buy/no buy decisions with 4-5 hours.
I'll add (I have about a year of experience in a student fund managing ~$10mm of fixed income) that you can take so many different bets, and if you're investing against an index, you don't necessarily need to hedge. For instance, if you have a large macro thesis that inflation will not increase as the FED cuts rates, you can extend duration while matching your sector and company allocations to the benchmark - and since the next best option for your fund is to buy the benchmark (and ride it however it goes - you can't feasibly short hundreds/thousands of bonds), your personal performance is measured as the difference between your return and the benchmark's return.
Instead, if you'd like to make specific sector bets (bullish on energy, bearish on consumer), you can overweight those sectors while matching key rate durations to essentially "hedge" against the monetary policy impact of the FED (since the benchmark will also reflect those FED impacts). These are just a few examples.
Hard to recommend without knowing what kind of firm. I’d kill myself if I had to work in LO IG credit
Hahha appreciate the honesty- would be interested as to why? is it too boring?
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