Looking for uncorrelated returns and controlled volatility to navigate credit markets?

Credit markets: a paradigm shift

In recent years, new structural trends have emerged, such as the polarization of the world, the re-localisation of supply chains, and the fight against climate change. These new trends are leading to higher inflation and lower growth. This new paradigm is having a significant impact on the financial situation of companies, and therefore on investment in corporate bonds. This calls for strategic adaptation on the part of investors. Adopting a strategy that aims to deliver a performance independent of credit market trends would therefore appear to be an investment solution worth considering in this new environment.

The implications of this new paradigm for credit markets are significant in terms of monetary policy, which can no longer be as accommodating as it was in the previous decade. As a result, we can expect more volatile credit spreads, more dispersion between "good performers" and "bad performers", even within the same sector, and higher default rates.

  • Nicolas Jullien, CFA
    Head of High Yield & Credit Arbitrage

In the middle of difficulty lies opportunity

In such a context, for investors wishing to take advantage of the credit market, we believe that an approach with alternative strategies capable of taking advantage of both tightening and spread widening is a viable solution.

At Candriam, our alternative strategy with low correlation to credit markets invests most of its assets in corporate bonds of issuers located in developed countries, with a rating equivalent to or higher than CCC /Caa2 from a recognized rating agency, or judged to be of equivalent quality according to our internal credit analysis. The strategy is a pure long / short credit strategy with no bias that employs a high conviction, selective approach designed to deliver uncorrelated performance across all market conditions. The strategy focusses on detailed bottom-up ESG-integrated research, allowing it to uncover long as well as short opportunities across credit markets. The long / short buckets seek to enhance the strategy’s ability to deliver returns that are uncorrelated market, while the tactical overlay may enable the team to limit volatility and manage drawdowns in a flexible manner. The strategy operates in a wide investment universe (Investment Grade and High Yield) which provides diversification and is generally devoid of any specific bias. The track record since launch has been encouraging, with the strategy delivering positive returns and controlled volatility in highly turbulent markets.


A process that flexibly Implements the best ideas of the High Yield Team

Our approach is primarily bottom-up driven and relies on rigorous credit research with the aim to generate outperformance. We also consider top-down (sectoral and regional) allocation as secondary sources of returns, while a material portion of alpha is also generated through our tactical overlay strategies that involve credit market exposure / hedging and duration management.

A preliminary filtering of the investment universe is applied based on ESG (controversial activities) and liquidity exclusion criteria. A detailed assessment of the economic, sector and industry framework is carried out in order to identify and select the best opportunities in the market. The investment teams establish a macro-economic scenario, identify opportunities as well as macro risks, top-down preferences in terms of sector, region, and rating.

The bottom-up analysis of issuers and issues forms the cornerstone of bond selection and is the main source of added value. This allows our portfolio managers to identify new investment ideas, to follow the credit quality of issuers over time, to gauge the impact of new information, and to determine optimal entry points. The High Yield Team at Candriam boasts of significant industry experience and a sturdy track record that goes back to 1999. The team also relies on quantitative tools to constantly monitor credit market valuations across sectors, ratings, regions, and instruments in order to generate ideas and eventually implement positions.

Portfolio construction is based on valuation, technical factors and market expectations, and is implemented by the key decision-makers: Nicolas Jullien, Head of High Yield & Credit Arbitrage and Thomas Joret, Senior Fund Manager, as part of a strong team of 4 credit analysts and 5 managers. Nicolas Jullien, as lead strategy manager, has final decision-making authority. Finally, positions are monitored in real time, and strict conviction-based selling discipline is applied.


A proven track record

Our absolute return strategy was launched in February 2021 and its objective is to use discretionary management to generate an absolute performance superior to the €STR© (capitalized) index with an ex-ante volatility target of less than 10% under normal market conditions. Volatility could nevertheless be higher, especially under abnormal market conditions.

Since its inception, the strategy has delivered an annualised performance of 4.82%[2], outperforming the €STR© index, with a volatility that is well below 10%. It is important to note that this performance has been achieved under highly stressed credit markets where investment grade and high yield markets posted negative returns. This ability to deliver uncorrelated and positive returns, with low volatility, in highly unfavorable market conditions, places the strategy as a viable absolute return strategy.

Because navigating the credit market is likely to be complex in the coming weeks or months, adopting an absolute performance strategy seems to be a smart solution for informed investors.



All our investment strategies are subject to risks including the risk of loss of capital.

The main risks associated with the promoted strategy are the following: Risk of loss of capital, Interest rate risk, Credit Risk, Liquidity Risk, Derivative risk, Counterparty Risk, Arbitrage Risk, Sustainability Risk.

This is a marketing communication. This document is provided for information purposes only and does not constitute an offer to buy or sell financial instruments, nor does it represent an investment recommendation or confirm any kind of transaction. Although Candriam selects carefully the data and sources within this document, errors or omissions cannot be excluded a priori. Candriam cannot be held liable for any direct or indirect losses as a result of the use of this document. The intellectual property rights of Candriam must be respected at all times, contents of this document may not be reproduced without prior written approval.

Warning: Past performance of a given financial instrument or index or an investment service or strategy, or simulations of past performance, or forecasts of future performance does not predict future returns. Gross performances may be impacted by commissions, fees and other expenses. Performances expressed in a currency other than that of the investor's country of residence are subject to exchange rate fluctuations, with a negative or positive impact on gains. If the present document refers to a specific tax treatment, such information depends on the individual situation of each investor and may change.

The risk of loss of the principal is borne by the investor.

Information on sustainability-related aspects: the information on sustainability-related aspects contained in this communication are available on Candriam webpage SFDR



[1] Source : Candriam, data at 31/01/2024. Inception date 04/02/2021. The fund is actively managed and the investment process involves reference to a Capitalized €STR© benchmark index. Past performance, simulations of past performance and forecasts of future performance of a financial instrument, financial index, investment strategy or service are not reliable indicators of future performance.

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