Connor Fitzgerald, Fixed Income Portfolio Manager at Wellington Management answers your questions on the Wellington Credit Total Return Fund at the Fixed Income event
For professional and institutional investors only. Capital at risk. This is a marketing communication. Please refer to the prospectus of the Funds and to the KIID and/or offering documents before making any final investment decisions.
Commentary provided is for illustrative purposes only and should not be viewed as a current or past recommendation and is not intended to constitute investment advice or an offer or solicitation to buy or sell securities. The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment.
1. What are you trying to achieve for investors and what role could your fund play in an investor's portfolio? How do you structure this fund?
Credit Total Return is a total return-orientated fixed income strategy that seeks to generate a long run total return by investing in a portfolio of USD-denominated Treasury, corporate, high yield and emerging markets bonds. We believe fixed income market pricing is often pushed to extremes that are inconsistent with fundamentals and forward-looking returns, due to investors' preference for income and yield at any price. Our Fund is designed to move in the opposite direction to the biases of many income-orientated fixed income investors. The Fund only holds credit securities where we believe there is value and seeks safety in US Treasuries and cash when valuations are stretched, which enables us to ensure the portfolio is responsive to changes in market conditions. We are seeing demand from investors for a strategy that has the potential to generate strong positive returns in tightening credit markets as well as to dampen the volatility of existing credit allocations in sell-offs. Clients have paired Credit Total Return with income-focused managers, existing strategic bond allocations and static investment-grade, high-yield and emerging markets building blocks to seek to capture dislocations in volatile markets and achieve diversification.
2. What are the big opportunities and risks for your strategy in 2025
We have entered 2025 with a relatively elevated balance of cash and US Treasuries and relatively low levels of credit to reflect the limited dispersion of spreads in investment-grade and high-yield markets broadly, along with the tightness of valuations. Despite this, in credit markets, we are still finding ways to take idiosyncratic risk in issuers we think are misvalued by the market and where our research analysts have a positive view on the fundamental trajectory of the business. In terms of opportunities in interest rates, we've moved to a balanced duration position — near the midpoint of our 3 – 6 year band — to reflect our concerns around growth in the US amid a backdrop of tariffs, tax cuts and uncertainty for businesses. A risk to the strategy would be spreads remaining tight at the index level and dispersion within investment-grade, high yield and emerging markets remaining low — while we maintain an income level in line with or above the US Intermediate Credit Index , periods of low volatility are typically more positive for income-based or less dynamic approaches. The key risks we are monitoring in the markets include the Trump administration's policies and their impact on the economy and business cycle, US labour market dynamics given the impact of lower immigration, and how the US fiscal deficit will trend this year against a backdrop of tax cuts, decreasing foreign buyer demand and debt-sustainability concerns.
3. Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be a stock, sector or thematic level
Two key investment opportunities we are playing at the moment are rotating our portfolio up in "liquidity" and finding opportunities in the intermediate segment of the credit curve. Since the start of the year, one focus of the team has been rotating our credit exposure into more liquid issuers and bonds, whether that be on-the-run securities or holding greater levels of cash and Treasuries, given that there is not a high premium for owning off-the-run bonds or less liquid issuers in the market. As we noted, we want to be responsive to changes in market conditions and be providers of liquidity during market sell-offs, rather than be forced to sell holdings at a steep discount. Our favoured area of allocation right now is intermediate, investment-grade credit. Structurally, we believe this maturity range offers a compelling balance of duration, credit risk and total return potential, and currently we are finding value in securities in this segment of the curve.
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