OREANDA-NEWS. Fitch Ratings has affirmed BlueBay Investment Grade Absolute Return Bond Fund's (IGARF) and BlueBay Investment Grade Libor Fund's (IGL) 'Strong' Fund Quality Ratings. The funds are managed by BlueBay Asset Management LLP.

The 'Strong' ratings reflect a research-driven investment approach, allowing the funds to make the most of global fixed income returns out of diversified sources. The ratings are also supported by the depth of BlueBay's dedicated fixed income resources.

KEY RATING DRIVERS

Fund Presentation
BlueBay IGARF and IGL are sub-funds of a UCITS IV-compliant Luxembourg Part I SICAV. The funds had USD8.5bn and USD1.2bn of assets under management (AUM) respectively at end-May 2015.

BlueBay IGARF and IGL aim to generate excess returns of 300bps and 150 bps per annum, gross of fees, respectively, over the Merrill Lynch Euro Currency Libor 3 Month Constant Maturity Index. BlueBay IGL has interest-rate duration hedged to a maximum of one year.

Investment Process
The funds implement a well-balanced research-driven, capital preservation-oriented investment process combining macro, fundamental, technical and relative valuation inputs in a formalised, disciplined but also flexible and reactive manner.

High conviction, mainly relative value trades implemented within well-defined risk guidelines, are the main source of returns. Macro exposures are adjusted dynamically using a derivatives-based overlay approach. At BlueBay IGL, interest duration is hedged using interest rate swaps and government bond futures.

Resources
Lead portfolio manager (PM) Geraud Charpin has 20 years of investment experience. The funds benefit from the depth of BlueBay's investment grade fixed income resources (24 PMs and analysts with an average of 13 years' industry experience).

Track Record
Since its launch, BlueBay IGARF (B EUR shareclass) has achieved its objectives, returning a net annualised 4.2%, with a tracking error of 2.5%, as at end-June 2015. BlueBay IGL (I EUR (Perf) shareclass) has returned a net 3.2% with a 1.9% tracking error but has underperformed most Euro IG funds due to its interest rate duration-hedged strategy.

In both funds, credit selection is the main driver of performance, which is consistent with the stated strategy. The funds benefit from markets where there is high disparity in credit returns. However, they tend to suffer when markets are driven by monetary policies and technical factors, as in most of 2014.

Fund Manager
Founded in 2001 and now owned by the Royal Bank of Canada (AA/Stable/F1+), BlueBay is a specialist credit asset manager with AUM of USD59.1bn at end-March 2015 (USD28.3bn in investment grade credit). BlueBay has been investing in investment grade credit and managing long/short funds since 2002.

RATING SENSITIVITIES

The ratings may be sensitive to material changes in the investment or operational processes or resources dedicated to the funds. A material adverse deviation from Fitch's guidelines for any key rating driver could result in a downgrade. For example, this may be manifested in significant structural deterioration in the funds' performance or excessive risk-taking.

Fitch sees limited key person dependency given the depth of the investment grade team but recognises the specialised skills of its lead PM for absolute return strategies. Conversely, an upgrade could result from demonstrated outperformance against peers on a risk adjusted basis over five years.

Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.

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