Portfolio managers need to focus on factors within their control and not try to predict the next big macro risk on the horizon, says Michael Yee, portfolio manager at Allianz Global Investors.
'The best thing we can do as portfolio managers is to choose the best investments; companies that are meeting or beating expectations, companies that are improving their margins, balance sheets, and profits. That’s what we can control. We can’t control what, when or how Bernanke will do what he does.’
The fund invests in three assets in the US markets: convertibles, high yield bonds and large cap equities. The fund's goal is to achieve a consistent and constant flow of cash for stakeholders.
‘There’s a target dollar amount,' said Yee. 'We’ve never missed nor deviated from this amount since we started, and we’ve always paid out earnings.’
Yee is quick to point out that while the portfolio consists of roughly 250 positions over the three asset classes, the allocation across asset classes is a static equal weight, while within each asset class, positions are equal weighted.
'We keep the allocations static because it gives us greater visibility on the distribution and it gives us the participate-and-protect mentality of the portfolio.’
When markets move up, Yee argued, equities and convertibles will outperform while when markets move down, the credit fundamentals of high-yield, convertibles, and an actively managed options strategy on equities helps cushion the downside.
Year-to-date, the Allianz Income and Growth - AM - USD (also managed by Yee and Forsyth) has returned 10.14% against the LCI Mixed Asset USD Bal - Global return of 3.52% (as at end-May 2013 in USD terms).
Yee attributed the year-to-date outperformance to positive performances across all three assets, saying, ‘convertibles have had the strongest returns, followed by equities and high yield, but all three are positive.’
He continues to favour all three assets, with corporate credits on ‘very solid footing’, while seeing ‘no near-term debt amortization risk’ in high yield, and equities meeting or exceeding earnings expectations in the first quarter of 2013.