OREANDA-NEWS. Fitch Ratings has downgraded BlueBay Investment Grade Absolute Return Bond Fund's (IGARF) Fund Quality Rating to 'Good' from 'Strong'. The funds are managed by BlueBay Asset Management LLP.

The downgrade reflects the fund's weak performance over the last 12 months relative to peers and objectives, resulting from difficulties in managing drawdowns, diversifying sources of returns and monetising trades, which Fitch considers inconsistent with its expectations for a "Strong" rated absolute return fund. The rating continues to reflect BlueBay's research-driven investment approach and deep dedicated fixed income resources.

KEY RATING DRIVERS
Fund Presentation
BlueBay IGARF is a sub-fund of a UCITS IV-compliant Luxembourg Part I SICAV. The fund had EUR4.0bn of assets under management (AUM) at end-February 2016. BlueBay IGARF aim to generate excess returns of 300bps per annum, gross of fees, over the Merrill Lynch Euro Currency Libor 3 Month Constant Maturity Index.

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 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.

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 (22 PMs and analysts and four traders).

Track Record
Since its launch to end- February 2016, BlueBay IGARF (B EUR shareclass) returned 13% net of fees but its performance deteriorated over the past 12 months, when the fund lost 6%. This has driven the fund's performance since launch below its objectives, despite strong performance in 2012 and 2013. Over the last 12 months, the fund suffered mainly from tactical interest rate positioning and from its long corporate credit positioning (most notably in the BB/BBB space). The fund also showed greater drawdowns than Fitch's peers over the past 12 months.

Fund Manager
Founded in 2001 and now owned by the Royal Bank of Canada (AA/Stable/F1+), BlueBay Asset Management is a specialist credit asset manager with AUM of USD57.3bn at end-December 2015. BlueBay has been investing in investment-grade credits 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 positive absolute returns that are uncorrelated with credit and interest cycles, evidenced through an outperformance against peers on a risk-adjusted basis over five years and achievement of investment objectives.