Pure credit exposure with CIBC Alternative Credit Strategy

Fixed income is often misunderstood as a homogeneous asset class, but in reality, it encompasses various factors and exposures, including duration, term to maturity, credit risk and more. The main risks in traditional corporate bond portfolios are interest rate risk and credit risk. On average, interest rate risk accounts for about 67% of a typical corporate bond’s total risk and 33% of its return, making it a significant contributor to volatility. A strategy that aims to minimize exposure to interest rate risk, offering pure-play corporate credit exposure that capitalizes on CIBC Global Asset Management’s research expertise is The CIBC Alternative Credit Strategy Opens a new window.. This unique risk-return profile makes the fund a diversifying complement to a core fixed income allocation.

Interest rate sentiment can shift rapidly due to geopolitical, economic, and inflationary factors. Recent events, such as the war in Iran, have demonstrated how quickly expectations can change, impacting credit portfolios. The strategy’s emphasis on hedging interest rate risk is particularly relevant in today’s environment, where predicting rate movements is challenging. The cyclicality of credit spreads presents opportunities for skilled managers to add value. The team actively adjusts leverage and sector exposures to capitalize on spread widening or tightening. Relative value analysis identifies attractive bonds within segments, allowing for dynamic allocation and risk management. The strategy’s toolkit includes leverage adjustments, credit sensitivity changes, hedging, and selective duration addition as a natural hedge against spread widening.

The CIBC Alternative Credit Strategy launched in June of 2022 and has a strong three-year track record in terms of gross returns and yield. Its performance demonstrates steady, smooth returns with less volatility than equities and higher risk-adjusted returns than traditional bond portfolios. The strategy complements traditional fixed income and alternative investments, enhancing portfolio returns and reducing volatility.

The strategy is positioned as a satellite component to core fixed income allocations, providing diversification and higher risk-adjusted returns. It offers liquidity advantages over private credit alternatives and can reduce reliance on equity risk. Historical data shows that adding the strategy to a traditional bond allocation improves overall portfolio risk-adjusted performance. 

With recent spread widening and macroeconomic concerns, the team remains conservative, prioritizing high-quality credits and defensive sectors. The dynamic approach ensures prudent risk management, with tools like Credit Default Swap Index (CDX) protection and government spread trading employed as needed. The strategy aims to be resilient during market drawdowns, underscoring its value as a complement to other asset classes. 

CIBC Global Asset Management is committed to providing market and investment insights. We want to help you find the right solutions to guide your investment journey. We invite you to learn more about the CIBC Alternative Credit Strategy Opens a new window..