In this information-rich age, it is crucial to combine cutting-edge technological tools with the hands-on expertise of the investment team in order to identify the best investment opportunities for our portfolios.
SANTA (“Structuring Analysis and Trading Assistant”) is a proprietary tool we developed to guide our allocation decisions. Once our research team has identified opportunities based on credit fundamentals, our execution and structuring teams use SANTA to evaluate and identify the most attractive security to invest in. SANTA allows us to sift through the bond universe and find mispriced securities quickly and efficiently.
Example: European Banks and Barclays Bank PLC
The Credit Research Team, working in conjunction with the Portfolio Execution Team, believed the European banking sector was priced attractively for the risk profile. European bank balance sheets have improved in quality given the health of corporate and consumer exposures, and many of these institutions have also demonstrated prudent risk and capital management. These improving fundamentals were not reflected in credit spreads, which in many cases, were at stressed levels. Each portfolio has a certain target weight for sector exposure based on what is reflected in credit spreads. When our team identifies an attractive opportunity through inefficiencies in the market, we manually override the target weight for the relevant sector.
How SANTA Works
1. Selecting a corporate bond issuer that illustrates the theme
- Given the analysis outlined above, the Portfolio Structuring Team increased the target weight for European banks in a number of our portfolios.
- Using the defined subset of banks selected by the Research Team, our Execution Team utilized SANTA to identify Barclays as an issuer that is attractively valued relative to credit fundamentals.
2. Selecting the right bond from the issuer
- By analyzing every security in Barclays’ credit curve, we identified a specific Barclays bond that was particularly attractive. This security was issued in the USD market, as shown in the diagram below.
3. Pursuing the best execution for the selected bond
- We aggregated trading liquidity information for this security and, using customized alerts setup in SANTA, mapped out and tracked trading opportunities in the security. This ensures that we minimize transaction costs in the acquisition.
Without SANTA, this would be a largely manual process that cannot cover the breadth of the bond market. Empowering our experienced portfolio management and research teams with sophisticated, multi-faceted tools allows us to unlock value more effectively than what was previously possible.
An Overview of the Process on SANTA
- Structuring the portfolio with a new target weight for European Banks
- Finding the right security based on liquidity and credit curve analysis
- Setting up alerts for the selected security to capture the most advantageous trade