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Sept 22 | Quantitative Management of Credit Portfolios

The Quantitative Portfolio Strategies (QPS) group has been a part of Barclays (and Lehman) research since early 90s. It helped launch Bloomberg bond market indices and engaged in a bespoke dialog with institutional FI investors on a broad spectrum of quantitative issues in managing portfolios relative to these indices. QPS research related to both risk management and alpha generation.

Quantitative techniques have long been used to measure and control risk in credit portfolios. A new measure of credit portfolio risk – DTS (Duration Times Spread) - was introduced by QPS in 2005 and has since been broadly adopted by institutional FI managers. We discuss this measure and illustrate the fact that it remained superior to traditional risk measures across multiple credit markets throughout all ensuing crises as well as in regular markets. We also address several other aspects of risk management in credit portfolios: setting issuer limits, empirical rates duration and its variability across the credit landscape, and the use of Treasury futures to manage rates curve exposure.

More recently, interest has grown in a systematic approach to generating alpha in credit portfolios, which is often complementary to a purely fundamental approach and is more scalable. We review several QPS signals that seek alpha in credit including value, momentum, equity short interest, and post-earnings-announcement drift. A number of these signals utilize cross-market information from equities or extend equity methodologies to credit. We also explore bond index inefficiencies as a potential source of alpha, such as fallen angels and delayed inclusion of new issues. We address various aspects of Environmental, Social and Governance (ESG) integration - from measurement of the pure ESG risk premium, to comparison of the exclusion vs “best in class” approaches, to ESG-related alpha generation.

High transaction costs in credit were the primary reason for the slow adoption of systematic strategies which often require significant turnover. However, in the past few years the credit liquidity landscape has evolved with the rise in ETFs and portfolio trading. We discuss this evolution and introduce portfolio construction techniques that can help to optimally combine signals and maximize expected returns net of transaction costs.

Who: Lev Dynkin, Ph.D. founder and Global Head of the Quantitative Portfolio Strategy (QPS) Group at Barclays Research will speak.

Date: September 22, 2022 at 12 noon

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The Fixed Income Analysts Society is dedicated to the education of its membership and the fixed income community at large. FIASI serves its members by sponsoring frequent, high quality educational programs and workshops covering topics of current interest to research analysts, portfolio managers, and other fixed income professionals. FIASI also sponsors an annual Hall of Fame ceremony to recognize lifetime achievements of outstanding practitioners in the advancement of fixed income security and portfolio analysis.

The Fixed Income Analysts Society is comprised of fixed income professionals who value the opportunity to learn, network and discuss important fixed income topics with colleagues across the industry. We draw from all disciplines – buy side, sell side, intermediaries, quants and academics – and all sectors – credit, rates, economics, securitized products, foreign exchange, emerging markets, municipal finance and commodities. Seasoned professionals as well as those new to the industry will reap the benefits of FIASI membership.

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