In a bid to expand its fund offerings, Middlesea Valletta Life subsidiary Growth Investments has entered into a partnership agreement with UK-listed asset manager Schroders to launch a range of funds on the local market.
Seven Schroder funds were registered in Malta last week following regulatory approval. Growth Investments is shortly to embark on a marketing campaign focused on the first - the Euro Corporate Bond Fund.
Described by Schroders as the "de facto European corporate fund", the vehicle has grown from €200 million to €2 billion in five months. A highly diversified fund covering over 147 issues, it takes advantage of any euro-denominated corporate bonds issued - currently over 1,500 issuers - and is monitored by a team of more than 24 credit analysts and 10 credit portfolio managers in London, New York and Singapore.
"We started to look at fixed income as the first alternative to direct equities as the local appetite for bonds is considerable," Growth Investments general manager Stuart Fairbairn told The Times Business. "While we appreciate why people are investing in single company bonds, we believe that for a diversified portfolio, it is potentially safer - and potentially more rewarding - to invest in a bond fund rather than directly in a corporate bond."
Established in 1804 by the Schroder family, Schroders plc is among the largest companies listed on the London Stock Exchange. It is well capitalised with over £900 million on its balance sheet and over €111 billion in funds under management. The company boasts over 338 investment professionals based at 34 offices in 26 countries.
Adrian Harris, Schroders' head of central and Eastern Europe and the Mediterranean, and Thierry Clarke, business development manager for the region, were in Malta last week leading training sessions for local intermediaries and meeting potential clients.
"Unique opportunities have been created by this turmoil," Mr Clarke said. "Corporate bonds are an example of that. The differentials between the yields on corporate bonds and the yields on government bonds have not been this wide since the 1929 Depression. The market is pricing in at a Depression-like scenario, but no-one believes that is where we are heading. We will not see 200 banks failing in the US or 35 to 40 per cent unemployment. That anomaly creates opportunities, and that is what we are looking to take advantage of."
According to Mr Harris, the "green shoots" are tangible, and the current upswing is not just another bear market rally. Regional currencies have stabilised somewhat, and financial assets bottomed out in February or March.
"The 'Santa Claus rally' at the very end of last year saw institutional clients selling down positions every time there was an opportunity to get a slightly better price," he pointed out. "That has changed. From around the end of February, institutional clients are now buying in to the rally. They had so much cash in their portfolios at the end of last year. That is still the case."
Schroders has been increasingly aggressive in its market position. Mr Harris said portfolios which were very defensively positioned over the past 18 months were turned around in two to three weeks, with remarkable returns.
He expected institutions and retail investors to put more cash into the market over the next eight to 12 weeks at the right moment and with the right mechanism.
Mr Clarke added that a noted change in attitude had also contributed to propelling the market, with investors looking for opportunities rather than the latest bad news.
"The question is: Can markets fall a little bit? We think that maybe they will pull back slightly," he pointed out. "However, there is still a lot of money on the sidelines and the longer this rally goes on, the more likely people are to come back into the market and drive that on even further. If you were looking for 'green shoots', that is the fundamental difference this time."
Schroders warns that the current optimism does not apply to all asset classes. Mainstream US equities are still facing difficulties, and European equities could run into some more volatility. There is increasing conviction, however, over equities in emerging markets.
Mr Harris recognises that the current generational opportunity for the acquisition of corporate bonds has not gone unnoticed by local issuers. Cash rates are low and will remain so for at least 24 months.
The European Central Bank - which held interest rates a week ago, as did the Bank of England - is not in any particular hurry to make its next rate move. And even then, it will most likely be upwards.
Inflation is at least two years away and, when it hits, managers will be prepared to adjust their strategy.
"Quantitative easing is natural inflation," Mr Clarke pointed out. "However there is a good and a bad side to that. For indebted countries, inflation works quite positively because it erodes the value of their debt. The US needs inflation. It is not a great evil.
"From an investment perspective, inflation is something to be very wary of. There are a number of measures which can be taken: in the fixed income market, investors can buy inflation-linked bonds. Some equities and commodities too work well in terms of an inflation hedge."
Schroders, he explains, has invested time and effort in client focus throughout the turmoil - feeding the information flow and consolidating client trust. Besides creating updated investor literature for clients and distributors, Schroders has embarked on an intensive training programme, even dealing with the basics of fixed income, measuring fixed and risk metrics, and multi-asset portfolios and their construction.
"Ultimately it is about results, and being very honest with clients and helping them to understand the risks - that is a key factor in investment," Mr Harris emphasised.
"Integrity in this business is absolutely critical. During seminars, we point out what is attractive and what is not. The Corporate Bond Fund is not a guaranteed investment. If clients want a guaranteed investment, there will be no return. That is also a function of the interest rate environment that we are in. Clients need to understand the risks and know what the potential is."
Schroders prides itself on its policy to carry out its own analysis, never relying solely on the credit rating agencies - as some investment houses are wont to do. The largely defensive approach meant Schroders did not hold any Lehman Brothers paper or AIG interests.
"We've had no defaults whatsoever on any of our portfolios for over 10 years. None of our clients lost directly as a result of Lehman Brothers' collapse last September," Mr Harris said.
One particular anecdote gives an indication of Schroders' standing: Mr Harris and Mr Clarke travel extensively and sometimes find that Schroders' A+ rating is higher than that of their destination.
"It's logically absurd, but it is a reality," they said.