List of results published below:
Why you don’t have to be global to succeed in Europe Methodology and explanation of tables Liquidity poll: Revealing the best market makers HIGH GRADE
Best in investment-grade overall BNP Paribas From second place in the overall investment-grade category last year, BNP Paribas hit the top spot this year, beating Morgan Stanley, winner for three consecutive years. Rick Deutsch, who heads European high grade credit research at BNP Paribas and oversees 14 analysts, attributes his team’s success to a plan instituted over 18 months ago to develop relationships with the bigger clients. “It’s about leaving personal messages, calling clients regularly, sending Bloombergs, anything that facilitates dialogue,” he says. “We try to get out to see major clients a few times a year, which builds our own credibility but also means we can bounce ideas off clients, engage in a conversation and express our views through a discussion rather than a lecture.” Deutsch says it’s not just about developing one-to-one relationships or even putting out relevant and high-quality research but backing this up with sector events, such as the utilities and telecoms conference the bank held at the beginning of March. Key calls in 2003: “We’ve had some good calls on industrials. We were negative on Fiat much before consensus, for example. We were positive on France Télécom and Deutsche Telekom very early and consistently negative on BT. We had a good early call on Veolia.” Key predictions for 2004: Deutsch says the market is structurally short, issuance in many categories is down on last year and investors are looking for wider spreads. “There’s a tremendous desire for yield. We’re telling investors that when credits are subject to positive M&A-related event risk and are otherwise stable, they could be cheap. But don’t just chase yield, as one poor credit decision could destroy a lot of running yield. In a tight spread environment, avoiding potential time bombs is critical.” Kathryn Tully top
Best in investment-grade telecoms and media BNP Paribas In a year of restructuring in the sector in 2003, almost all the European telecoms names traded tighter, which presented a challenge to the two-man team headed by Deutsch in picking outperformers. But the team moved up from second place last year to top the poll in 2004. Key calls for 2003: An early buy on France Télécom and Deutsche Telekom since mid-2002 on the back of confidence in their deleveraging strategy. The team has been been consistently negative on BT. Key predictions for 2004: Investment-grade telecoms was one of the best-performing sectors of 2003 but by the end of the year the shift from shareholder interest to bondholders was increasing. Jean-Yves Guibert says: “We have had to look at what their next strategy will be. Which operations are now best at balancing the interests of shareholders and bondholders? What will be the use of their free generated cash? The sector is also evolving rapidly in terms of technology and customer behaviour, so some companies such as BT are struggling to maintain their revenue base.” Career history: Deutsch started his career in the US in corporate lending. He then moved to SG Warburg in Europe in a combined corporate and credit research poll when research on bonds was in its infancy. He has been at BNP Paribas for five years. Before that he spent five years at Merrill Lynch in London as co-head of credit. Personal interests: Having dropped out of his PhD programme, Deutsch is an amateur historian. “Whenever I get a chance, I take a slug at my old doctoral dissertation.” What the investors said “BNP Paribas does an excellent job of providing in-depth, fundamental research and tying the research to relative-value views of the market. Investors get insight into both industry fundamentals and actionable investment ideas.” Kathryn Tully top
Best in investment-grade general industries BNP Paribas The team’s long-term strategy to divide its research into two broad categories has proved a success, bumping the team up three places in the poll. Their thorough analysis provides investors with information on credits of diversified industrials such as Siemens as well as basic industries such as building materials, chemicals, and pulp, paper and forestry products. Vivek Tawadey says: “We take a more selective approach towards our coverage of the second category as the sectors often offer some additional spread premium, so we cover the sector in depth to evaluate investment opportunities.” The widely read publication Credit Espresso has also contributed to the team’s success, offering opinionated pieces that “question what is the biggest event that has happened today and what impact it will have on the market”, says Cyril Benayoun. Key calls for 2003: The team anticipated HeidelbergCement’s downgrade to junk at an early stage and put a sell on the bonds. “Later in the year, we moved to a more positive stance, based on our expectation of a much stronger operating performance in 2004 and further debt reduction,” says Benayoun. For steel, the team have been positive on Arcelor since the fourth quarter of 2003, correctly predicting that the company would keep its BBB/Baa2 long-term rating. “We were much more positive than market consensus, which was anticipating a downgrade,” says Benayoun. In chemicals, key picks were Bayer and Akzo Nobel in the last quarter of the year. According to Frances Hutt, Bayer’s spreads significantly underperformed the market for most of 2003 as a result of the Baycol issue, while Akzo’s spreads underperformed due to weak fundamentals. “In September, however, we changed our view on the companies, as Bayer began to settle many cases out of court and won those few that actually reached the courtroom, while Akzo made good deleveraging efforts and extended its disposal programme. Since September, they have both outperformed the market.” Key predictions for 2004: In the pulp, paper and forestry products sector, M-real and Metso Corp’s spread differentials have narrowed a lot recently and the team expects them to continue to do so for the next few months, in line with their respective hold and reduce recommendations. “Spreads are expected to remain reasonably stable, however, for Stora Enso and UPM-Kymmene, due to their relatively stronger fundamentals and the general rarity effect seen in the sector,” says Hutt. On chemicals, the team expect Bayer and Akzo Nobel to outperform if no material changes in their situation occur. “In general, we expect spreads to remain tight in the chemicals sector due to the rarity effect, and we maintain a neutral stance on the sector,” concludes Hutt. Career history: Tawadey joined BNP Paribas three-and-a-half years ago and previously worked with ABN Amro, Nomura and First Chicago. Benayoun moved to the bank six years ago and has been covering autos and industrials for the past four years. Hutt joined BNP Paribas five months ago and was previously a corporate credit analyst at Citigroup. Personal interests: All the team enjoy travelling. Tawadey plays tennis, Benayoun is a keen skier and squash player, and Hutt plays the violin. What the investors said “BNP Paribas was able to deliver strong and accurate research and timely advice.” Deborah Kimbell top
Best in investment-grade automotives BNP Paribas The team’s global approach to the automotives sector might explain their jump from fourth to first position this year. The analysts offer detailed coverage of credit developments in the US, Europe, Japan, Latin America and China. Credit developments are evaluated in the context of spreads and potential supply in order to come up with definitive trading ideas. “We also have a dedicated team of credit strategists and relative value analysts who we work with closely to formulate workable trade ideas,” says Vivek Tawadey. In line with this, they produce two very popular publications on the sector: Auto Accelerator and Global Auto Profiles. The former provides a bottom-up view on credit events affecting each individual credit as well as portfolio recommendations. “We also recommend tactical trades based on relative value considerations,” says Cyril Benayoun. The latter offers a more in-depth view on the evolution of the major auto markets and the key themes affecting credit. Key calls for 2003: Soon after GM’s mega bond deal in July, the team moved GM to overweight and its spreads then performed strongly throughout the second half of the year. Despite being surprised by S&P’s action to place Ford on credit watch in October, the group correctly predicted that the agency would keep its ratings outlook stable, once downgraded, and the spreads rallied strongly. “On European autos, we maintained a bearish view on Volkswagen and an overweight recommendations on both Peugeot and Renault and these trades all performed well,” says Tawadey. Key predictions for 2004: At the start of 2004, the team maintained an overweight recommendation on the Big Three. “We believe it is going to be a volatile year but less so than 2003,” says Tawadey. “We have chosen our entry and exit points carefully for the most liquid names and are focusing around assessing relative value and curve trades.” What the investors said “The quality of coverage and excellent trade ideas presented in Auto Accelerator is why I voted BNP Paribas in this sector.” Deborah Kimbell top
Best in investment-grade consumer products and retail (including tobacco) BNP Paribas Regular monitoring of a wide range of names across the sector has been a winning formula for the consumer products and retail analysts at BNP Paribas. “We maintain a broad and consistent coverage of the sector which is characterized by a large number of diverse names, often with relatively limited amount of bonds outstanding,” says François Lauras. They have also put increasing focus on the pricing differential between the sterling and euro sector. This has helped highlight some diversification opportunities with names that trade cheaply, for instance, in the sterling sector relative to the euro market and vice versa. “It can also give you a hint of more rational pricing for names that are perhaps more closely followed by their domestic investors,” says Lauras. Key calls for 2003: Last year, after taking comfort from the Competition Commission’s conclusions on UK grocers, the team recommended a switch out of Sainsbury’s into Safeway, which has since performed quite well in both euro and sterling. “We also kept overweight portfolio positions in French retailers Carrefour and Casino, on the back of our expectations that these two groups would further deleverage,” says Lauras. In the tobacco sector, prudent monitoring of the Price litigation case, the first “lights” class action lawsuit to reach trial in the US, enabled the team to make a good call on Altria. In March, it moved to negative on the name, ahead of the verdict. “Taking heart from the fact that the Illinois Supreme Court swiftly stepped in to confirm the appeal bond and accepted to review PM USA’s appeal of the case, we subsequently upgraded to buy in September,” says Jean-Yves Coupin. Key predictions for 2004: The team expects there will be less M&A activity this year as companies such as BAT will focus on integrating recent acquisitions. Earlier this year, it took a more positive stance on hotel companies such as Hilton, with the stability of its Ladbroke franchise. However, they have also been careful to consider geopolitical activity. “Without ignoring the effect that a resurgence in terrorist activity could have on the travel and leisure sector, we still see value in the short-dated bonds of Accor following the sharp spread widening of late January,” says Lauras. But on a longer-term basis, they still favour UK retail names such as Safeway following its merger with Wm Morrison and Kingfisher. Career history: Lauras and Coupin joined BNP Paribas about three years ago. Lauras had worked at Deutsche Bank and Bear Stearns on the sell side and Coupin on the buy side and in corporate banking. Personal interests: Lauras enjoys spending time with his family and taking his son to football matches at the weekend. Coupin plays golf and enjoys spending time with his two young children. What the investors said: “Most houses mass produce research but BNP Paribas offers a more personal service and they are willing to spend time with specific queries. Moreover, their bid-offer quotes are very competitive and they are prompt with their execution.” Deborah Kimbell top
Best in investment-grade utilities BNP Paribas With Adrien Fourcade speaking French and Spanish and Marc Watton speaking French and German, the two-man utilities team naturally put a degree of emphasis on names that are linked to those languages. Ultimately, though, the team is committed to providing detailed and fundamental analysis of all the names in the sector, keeping in mind an investor’s perspective. “I feel that we have done well again this year because we take positions and provide strong opinions,” says Marc Watton. “We try to make sure that investors are very clear on what our views are on different issuers – whether those views are positive or negative.” Key calls for 2003: German utility RWE was a key call, and over the past 12 months the bonds have performed well. “Last year rumours abounded that the company would get downgraded another notch but we advised investors to stay put and not to get scared,” Watton says. “Subsequently, it has not been downgraded and it is probably going to have its ratings affirmed with a stable outlook in the next few weeks or months.” Says Adrien Fourcade: “We always felt strongly about Union Fenosa because of their disposal programme and the improvement of its business profile. Although the ratings haven’t really moved yet as further evidence is needed especially towards year-end 2004, at least their spreads have tightened a lot.” Key predictions for 2004: The team predicts a relatively stable environment for utilities credit for the remainder of 2004. “Clearly there will be developments, probably towards the end of the year, depending on what happens in the political situation and the equity markets, which could lead a few utilities to start flexing their balance sheets again,” says Watton. Career history: Watton is a senior credit analyst and joined BNP Paribas in July 2000. Prior to this, he was at S&P for just over four years and at NatWest Bank for 14 years. Fourcade has been with BNP for seven years: four years in Chile in corporate banking and three years in credit research. Personal interests: Watton enjoys going to the theatre and cinema and Fourcade plays golf and enjoys reading and travelling. What the investors said: “BNP Paribas consistently produces the most thorough, insightful, fixed-income research in the sector. Their attention to detail and understanding of the underlying issues is excellent.” Deborah Kimbell top
Best in investment grade banking Morgan Stanley Morgan Stanley’s success in this sector again this year lies in its team’s continued efforts to produce reactive and opinionated commentary, irrespective of which bank brings the deal. “We try to differentiate ourselves with timely research,” says Olivia Guillard. “For example, within hours of the Parmalat crisis, we issued a Credit Flash on it with initial information and views, followed by an update with more details the next day.” The team’s publication, Bank Capital A to Z, which focuses on bank capital and related regulations, continues to be widely acclaimed. Linked to this, it also holds an annual conference that gives investors the opportunity to meet issuers and attend workshops. Key calls for 2003 The team’s most important call was going underweight on euro tier 1 capital in the first week of January, when the market was at historically tight levels. It believes it was the only one to make this move before the subsequent significant widening. Key predictions for 2004: The team’s recommendation is to go up in credit quality at compressed levels and to continue to look at Japanese banks. “We are overweight euro and sterling lower tier 2 capital, as we believe this sector will outperform in a widening environment,” says Guillard. “The overriding theme, though, will be consolidation, which will bring fresh opportunities.” Career history: Before joining Morgan Stanley’s fixed-income research team six years ago, Guillard worked in project finance in Asia. Personal interests: Guillard enjoys playing the drums, sailing and travelling. What the investors said: “I voted for Morgan Stanley because I find them reliable, even if we may sometimes disagree. They have a very professional approach and I always appreciate their opinion. Their Bank Capital A to Z manual is a must for every market participant.” Deborah Kimbell top
Best in investment-grade insurance UBS Because of the complexity, opaqueness and volatility of the insurance sector in 2002 and 2003, Damien Regent and his team felt there was a real need for more helpful research. Regent believes moving up one place this year results from a contribution of the salesmen and traders at UBS bringing liquidity to the market and the team’s change in focus on particular names in the sector. “In 2003 we spent about 80% of our time focusing our credit research on the more difficult insurance stories,” says Regent. “Making recommendations on the more obscure credits can be challenging at times and I am glad that UBS has been able to actively cover the full range of insurance bonds in the secondary markets.” Key calls for 2003: The team spent time researching such companies as AMP, Hanover Re, Munich Re and medium-size UK life insurers. AMP is up 400 basis points, and the cash price for Equitable Life has increased three or four times. Generally the best calls were on the more difficult credit stories as they all performed strongly but “probably the most important prediction was AMP in the context of its demerger,” says Regent. Key prediction for 2004: “This year, it is more difficult to find obvious candidates for outperformance. We remain positive on Friends Provident and Zurich Financial Services as there are wider spread levels.” Career history: Regent has been an insurance credit analyst for over eight years. He joined UBS in December 2001 and previously worked at Moody’s between 1996 and 2001, researching a number of European insurance companies. “With the benefit of hindsight, I joined UBS at a perfect time, six months before the insurance sector became so volatile,” he says. “Moody’s was a good school for me as there was a lot of M&A activity in the late 1990s.” Personal interests: Regent has a keen interest in the opera and enjoys hiking in the mountains. What the investors said: “Damien Regent at UBS won my vote for his consistent in-depth sector and company specific knowledge. He has demonstrated expertise in assessing a broad range of credits through what has been a difficult time for the industry, ranging from the strongest names in the sector to credits whose bonds spent a prolonged period trading at distressed levels.” Deborah Kimbell top
Best in investment-grade credit strategy Citigroup Matt King was former head of investment-grade credit strategy at JPMorgan, the bank that topped Euromoney’s 2003 poll in this sector. He moved to Citigroup last year but he has carried his success at calling the market with him. Last year, when the credit markets rallied across the board, the team faced a challenge pinpointing the credits that would outperform the market, but its advice to buy what it called ugly duckling credits paid off. This year, the team says the name of the game for investors is diversification into high-yield, structured products, CDOs and credit default swaps. Key calls in 2003: “Last year we went to investors and said ‘you should buy all the rubbish you can find’,” says King. “People thought we were nuts, but our predictions turned out to be right. It was the low-quality names in particular that outperformed.” Key predictions for 2004: King says that despite the consensus that the credit market isn’t going to do very much this year, his team is still bullish. “The question for investors is ‘how on earth am I going to make any money and justify my fees?’ They should consider doing things outside their investment mandate to improve their return. Unless investors are using credit default swaps and high-yield, it’s unlikely that they will have an active return of more than 50 basis points over their benchmark.” Career history: King joined Citigroup in September as head of European quantitative credit strategy from JPMorgan, where he had spent six years – three years in credit strategy and three years in government bonds. Fumagalli is an ex-colleague of King’s from his JPMorgan days. Personal interests: King used to be into marathon tandem cycle rides, including one that took him and his wife from Bangkok to Shanghai. Now he is preparing for the arrival of his first baby, his cycling activities are a bit less ambitious. What the investors said: “Matt King offered the best analytical approach by explaining the basis for his views. We look as much at views as analytical insight, so the combination of Matt King’s bullish view of the market and his analytical approach offered us the greatest insight into the workings of the market.” Kathryn Tully top HIGH YIELD
Best in high-yield overall Citigroup Citigroup’s high-yield team had a strong showing in Euromoney’s 2003 credit research poll, coming in third. This year David Newman, Thomas Crawley and the team have taken the top spot from Deutsche Bank, last year’s winner. “We looked at the results of Euromoney’s last poll and realized we did very well with our clients in the UK, but didn’t score so highly in Europe, so we have been working on improving our profile with continental European clients,” Newman says. He adds that the bank has also stepped up its high-yield research publications from 60 pages to 360, including a lot more sector relative value comments. The bank also merged its research on crossover credits with its high-yield output in 2003. Newman also attributes Citigroup’s success to the fact that the bank has sustained its high-yield research throughout the cycle of the business, rather than growing the team aggressively in the good times and then sacking them all when the market is quiet. Many of the six other high-yield analysts have been with the team for years, allowing them to develop sector niches, and a long-term view of the market throughout its ups and downs. Key call for 2003: The bank has been recommending ABB since November 2002 and all the way through 2003. “We’ve made a series of good calls on the fallen angels,” says Newman. Key predictions for 2004: “We don’t think that high-yield performance is going to be as great as people think it will be, although the European market should make 8% this year. I started off my career in a bear market and I think it’s important that people realize that a bull market doesn’t mean every credit is a good credit.” Kathryn Tully top
Best in high-yield telecoms and media Citigroup The telecoms, media and technology credits and the analysts that cover them have gone through a period of dramatic change, so rising from third to first position during this volatile period is quite an achievement. “Both Kay Turner and I are some of the few surviving analysts that cover the TMT sector,” says Tom Crawley. “Our success in this sector is really about experience and our full credit spectrum coverage.” In the team, Turner covers European cable and media and Crawley covers the TMT sectors from triple C to double A-rated credits. This combination of skills has been useful in aiding the team’s understanding of both fundamentals and technicals across both markets. “We were also able to make some good crossover trade recommendations: getting high-yield investors into high-grade names and high-grade investors into high-yield names,” says Crawley. Key calls for 2003: Last year the team was very bullish on Cable & Wireless and there was a significant bond price movement up 15 points. Key predictions for 2004: This year, the team expects Cable & Wireless to continue to show a material upside in its price. Career history: Tom Crawley is co-head of corporate bond research. He joined Citigroup in 1996 and was previously a utility and telecom analyst at Standard & Poor’s in London. Personal interests Crawley enjoys travelling and playing golf. What the investors said: “Citigroup’s accessibility, in-depth analysis and knowledge of the telecoms and media sector are all extremely good.” Deborah Kimbell top
Best in high-yield general industries and manufacturing Deutsche Bank In the past, the team at Deutsche Bank has been consistent in both good and bad markets and its continued dominance in European high-yield research is largely a result of its ability to adapt its strategies to changing market conditions. “There was a dislocation in the market in the fall of 2002 during which time we greatly expanded our buy list, as it was our belief that a large number of credits were significantly undervalued,” says Sven Olson. Yet by 2003, it had adopted a more neutral stance as those credits had reached a fair value. Key calls for 2003: “We took advantage of select situations such as the Dutch side of Corus, which offered an excellent risk-return profile and made a relatively quick return of 20% beginning in April 2003,” says Olson. “Later in the year our call on Preem Petroleum made 16%.” Key prediction for 2004: Olson and the team do not have any buy recommendations, but so far in 2004, their best call has been a sell on Petroplus, which has dropped from 94 to 81 over the past two months. Career history: Olson began his career at JPMorgan and moved to Bankers Trust in 1996; he stayed with the company after Deutsche Bank acquired it. He has been involved in high-yield research since 1998 and is now head of European high-yield research and an industrial analyst at Deutsche Bank. Personal interests: Olson enjoys skiing. What the investors said: “Deutsche Bank produces a detailed model book which enables investors to put a deal into context with others in the peer group. This is extremely useful and the team are always very knowledgeable.” Deborah Kimbell top
Best in high-yield consumer products and retail CSFB Ben Booth believes his team’s leap from sixth to first position in this year’s poll is a result of the huge effort put into providing investor education in the primary market, following the secondary market more, and encouraging as much contact with investors as possible. “The team tries to provide a service that is relevant and current,” says Ben Booth. “In particular, we spend a lot of time meeting with investors.” Key calls for 2003: Eco-Bat Technologies was a key call, particularly as the conditions in Eco-Bat’s end markets were very challenging for most of last year. “There were a number of moving parts and we spent a significant amount of time isolating and quantifying these factors,” says Booth. “This whole process underpinned our recommendation on the company and in December 2003, supported by a favourable development in the lead price, we increased our recommendation to buy from market perform.” Eco-Bat’s bonds now trade at a price of around 113, compared with 107 back in December. Key calls for 2004: If the market remains buoyant during 2004, Booth says it is likely that the team will focus on risk-reward profiles and on the prospects to support recommendations. “We also believe there is significant value in the primary market, relative to the average price and call characteristics of many names in the secondary market,” he adds. He does not think the secondary market is cheap at the moment. But he believes there will be more M&A activity this year, and he predicts that a number of high-yield issuers will be bought, which may drive total return for some bonds. In the primary market, he predicts strong demand for many new deals and demand-driven price appreciation may be one way of achieving a “higher than advertised” return over the next 12 months. Career history: Booth is a director of European high-yield research at CSFB. He has been at the bank for just over six years and was previously a high-yield analyst at Bankers Trust. Prior to that he was on the buy side at Friends Provident Asset Management. Personal Interests: Booth enjoys golf, swimming and spending time with his family. What the investors said: “Ben Booth knows his companies and always gives honest appraisals of where he believes problems may lie.” Deborah Kimbell top
Best in high-yield credit strategy Citigroup Rising from eighth position to first in a year is a huge achievement. For Citigroup, 2003 was about providing more information on both credit and relative values and bringing more clarity to the research on fallen angels. “We published a text called Finding Value in Confusion, in which we tried to price fallen angels based on both the worst thing happening and, at the other end of the spectrum, a more positive outcome,” says David Newman. “This methodology has given investors a tool to quantify an investment as clearly as possible.” Furthermore, while some credit research houses have been retrenching, Citigroup has been expanding. Recent additions to the team include John Fenn as head of high-yield strategy in the US and Gordon Kerr in London. Key calls for 2003: Newman cites ABB as the team’s most important call last year. It was its biggest buy and at the beginning of the year it started at 40 and by the end of 2003 was close to 110. The team was much more bullish than the rest of the market on this name and its justification was rooted in its legal assessment. “We approached it from a legal point of view and assessed what impact US jurisdiction and enforcement would have on it,” says Newman. “The market was assuming that the whole of ABB would be brought down by the US asbestos trials but we felt that the impact would not be so great.” Key prediction for 2004: The team is confident that ABB, Cable & Wireless, Corus, Eco-Bat, Flender and HCA will all outperform this year. Career history: David Newman joined Citigroup in August 1999 and is co-head of European credit research. Previously he was head of high-yield research at UBS. Personal interests: Newman enjoys travelling and, as a former DJ, has a keen interest in music. What the investors said: “David Newman and his team offer the best-quality research. Their trade ideas are very good and they are always extremely reactive to any queries.” Deborah Kimbell topOTHER CREDIT
Best in credit derivatives strategy JPMorgan This time last year, JPMorgan won the award for best credit derivatives strategy when it was covered from within the general credit strategy team. Since then the bank has set up a three-man strategy team dedicated exclusively to credit derivatives and flow products under Lee McGinty. This year McGinty and his team have been preoccupied with building this new research function and educating investors about new products. In 2004, he hopes that the team will be able to start coming up with more trading ideas. Key call in 2003: “We made a call in the middle of last year that volatility was going to be low, which it was for several months.” Key developments in 2004: “We’re now producing a lot more research about correlation and volatility, looking not so much at whether spreads are going to go up or down, but whether they are going to be volatile or not within that framework.” Career history: McGinty has been at JPMorgan for four years, before which he worked at a small hedge fund analyzing equity volatility. “It’s been a useful background when looking at new products such as credit options to draw analogies with the equity options.” Personal interests: When he takes time out from renovating his house, McGinty is keen on horse racing. What the investors said: “We found that JPMorgan’s innovative structures across market segments, flexibility and willingness to work with clients to develop new, more tailor-made structures and very high quality research, differentiated them from other dealers.” Kathryn Tully top
Best in ABS Deutsche Bank With such a diverse and somewhat disjointed investor base for asset-backed securities, providing research can be a difficult task. But the ABS team at Deutsche Bank think it managed to secure first position again this year because its analysis is driven by a bottom-up approach. “Our research philosophy has centred on deal-specific analysis, which we draw upon in order to formulate sector-based views,” says Ganesh Rajendra. “While we complement deal-specific analysis with broader market-based research, unlike many other research houses we don’t just rely on market-wide data and information.” But Rajendra adds that the team’s success can also be attributed to having as much dialogue as possible with investors: “Such discussions provide us with a forum to make investment recommendations that are consistent with the investor’s risk/return appetite, while of course allowing us to benefit from and respond to buy-side feedback.” Key calls for 2003: Ford and Fiat were among the team’s top name-specific recommendations and both began 2003 at historically wide spreads. “We felt the pricing was inefficient considering the credit exposure and the market was overly focused on corporate parent concerns rather than the ABS portfolio or structural quality,” says Rajendra. “These series tightened significantly by year end.” In terms of sectors, the team was recommending that investors should be overweight in residential mortgage-backed securities as a play on consumer credit over the first half of the year and became more bullish on corporate credit exposures – via collateralized debt obligations and commercial mortgage-backed securities – in the second half of 2003. RMBS was one of the best performing sectors in the European market in 2003. “The tightening in CDO and CMBS spreads has lagged the general market, but we continue to be bullish on these sectors given how cheap they are relative to market, with apparently no credit deficiency to show for it,” Rajendra says. “However, we think being selective remains key when investing in these non-consumer credit sectors.” Key prediction for 2004: During 2004, the team believes that spread behaviour in this market will be increasingly influenced by market technicals rather than just credit fundamentals. They think that market technicals will remain solid and predict that the tightening in the market will continue over the foreseeable future. “Fundamentally, ABS continues to offer exceptional value over comparably rated corporates and sovereign paper, despite the recent rally,” says Rajendra. Career history: Rajendra joined Deutsche Bank in May 2001 and is a managing director and head of European securitization research. Before this he worked at Merrill Lynch for four years in the international structured credit research group and for five years as a fixed-income analyst for a Japanese bank. Personal interests: Rajendra is a contributing author to a number of books on securitization and is a regular speaker at industry conferences and seminars. What the investors said: “Deutsche Bank delivers superior research on credit asset-backed securities both in terms of quality and the range of products it covers. This is supplemented by Deutsche Bank’s strong origination capabilities and excellent product development underpinning the group’s leading position in the ABS market.” Deborah Kimbell top
Best credit index and portfolio analytics Lehman Bros In the first year that Euromoney has assessed strength in providing indices and portfolio analytics in the same category, Lehman Brothers comes out on top. Lehman has long been known for its credit indices but as David Munves, head of the 10-strong indices team says, a lot of banks produce a suite of indices these days. It is a combination of this alongside strengthened analytics that is the key to the team’s success. “The ability to offer a complete suite of supporting analytics is increasingly important for investors,” he says. Key developments in 2003: The team launched a new global risk model in November 2003 to assist investors that have to manage a global portfolio. It also introduced new floating-rate note, asset-backed securities and credit default swap indices. Key developments in 2004: “We’ll continue to introduce new indices as investors demand them, although we’ve now mapped most of the major asset classes,” says Munves. “We’ll also continue to improve analytics and raise our profile with clients.” The team is also developing a new performance attribution system to help clients account for their total return. “It’s important for investors to have as accurate a picture as possible as to where their 50bp of total return came from,” he says. Career history: Munves has been in the industry for 20 years, divided pretty evenly between Standard & Poor’s and the sell side. He has been at Lehman Brothers for eight years, where until about a year ago, he was head of European credit strategy. Now he is head of the European index group and head of LehmanLive marketing. Nehorai joined Munves at Lehman Brothers a year ago before which he spent four-and-a-half years at Merrill Lynch in the bank’s indices group. Personal interests: Munves has two young children, which keeps him busy. What the investors said: “Lehman Brothers offer customized indices and are able to cap the issue weighting of all index members, which is good for the more risk-averse customer. The index group is always very responsive to any queries.” Kathryn Tully top
Best quantitative credit research and modelling Lehman Bros The winners in this new category in 2004 are a combination of two teams, which together are eight people strong. Vasant Naik is head of quantitative strategy, using a quant framework to produce trade recommendations for clients, while Dominic O’Kane is head of quantitative research, helping clients to understand products, valuations and risk models surrounding particular trades. O’Kane’s team also builds valuation and risk models for Lehman’s own trading desk. “We’re not doing quantitative research in a vacuum, which I think is why we have such a successful model,” he says. “If you’re solving problems for traders every day then you are solving problems which are relevant for clients.” Key developments in 2003: The team has been educating investors about the pricing and valuation in rapidly evolving areas such as credit default swaps and CDO correlation modelling. It also produced OneScore, a model combining quantitative and fundamental research which Naik says is one of its kind in the market. Key developments in 2004: The team is developing a new model called LH+, which calculates delta on CDO tranches. Naik’s team is also looking to find a way of quantifying macroeconomic drivers of credit markets. “Everyone’s talking about what will happen to the yield curve, the US economy and so on but what we haven’t yet seen is a econometric analysis of how these will affect the credit markets,” he says. Career history: O’Kane has a DPhil in theoretical physics from Oxford University and spent two-and-a-half years at a hedge fund before moving to Lehman Brothers seven years ago. He has focused on quantitative credit research for five years. Naik has run the fixed-income quantitative strategy team for six years. Previously he was professor of finance at the University of British Columbia in Vancouver. Personal interests: O’Kane is kept busy with his family and two boys while Naik enjoys playing chess with his two sons, aged 10 and eight, as well as travelling, running and reading modern Indian literature. What the investors said: “Lehman Brothers’ quantitative credit research and modelling is nicely tied into the market outlook and sector and issuer recommendations. The research and modelling processes are precisely and concisely documented and illustrated, and supports the readers’ understanding of its overall credit research.” Kathryn Tully top
Best in emerging-market sovereigns JPMorgan Joyce Chang believes the team’s continued success in this sector is largely due to its comprehensive coverage, as it has strong regional research teams positioned in Singapore, London and New York covering Asia, emerging Europe and Latin America. “Another major difference is the strength of our quantitative research team which allows us to come up with top-notch relative value and cross-market recommendations between local markets and external debt,” adds Chang. The monthly client survey is a crucial tool for the team, enabling it to assess investor positioning within the overall market. “Technicals were a key driver of 2003 performance, particularly for market timing,” says Chang. “I believe that technicals will continue to be a big driver of our research views throughout 2004 as well.” Key calls for 2003: Last year, the team’s most important call was to stay overweight on Brazil and Russia. “We reduced exposure recently before the current political scandal,” says Chang. “We have also timed our calls on Venezuela and Turkey well, and were strategic in reducing exposure in Colombia and the Philippines at the right times.” Key predictions for 2004: The team’s largest overweight recommendation is Russia, as it believes that the elections will result in an even more reform-oriented government. High commodity prices also support economic performance. The team also recommends tactical positions in Turkey and Venezuela. Career history: Joyce Chang has been involved in sovereign research for 15 years. She is managing director and global head of the currency, emerging markets and commodities research groups at JPMorgan. Before joining JPMorgan, she was a managing director at Merrill Lynch and Salomon Brothers. She has also worked as a consultant for the United States Agency for International Development in Manila, Amman and New Delhi. Personal interests: Chang is involved with charities that are related to promoting emerging markets. What the investors said: “Although we would ultimately like to have global exposure on emerging-market sovereigns (especially by means of passive products able to replicate the EMBI+ index), we voted JPMorgan because they give access to asset allocations through products such as MBplus. This allows us to get exposure to credit risk on emerging market sovereigns.” Deborah Kimbell top |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
