Traditional and Alternative Factors in Investment Grade Corporate Bond Investing

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Traditional and Alternative Factors in Investment Grade Corporate Bond Investing
Amundi

Key findings
••We define a traditional bond risk factor model with duration times spread, duration
and liquidity.
••We define new alternative factors for value, momentum and we test low risk and size.
•• Our specification for momentum which considers adjustment by duration does not
display a reversal feature.
••We observe a change in the market conditions in the euro corporate investment grade
bond space in our analysis period which runs from 2003 to 2018. We have a first period
between 2003 and 2008 and a second between 2009 and 2018.
•• In the first period from 2003 to 2008, the market is better explained with the set of
traditional factors than with CAPM alone.
•• In this first period, the addition of new alternative factors increases explana- tory
power but comes with increased collinearity. We retain value, momentum and size as
new alternative factors.
•• In the second period from 2009 to 2018, traditional factors in a multi-factor framework
need to be augmented by alternative factors to keep the multi-factor framework
relevant against CAPM alone.
•• Corporate investment grade bonds require additional research for statistically significant
factor investing. DTS remains the outstanding bond factor. How- ever investors can
function in a more active management environment with lower factor intensity.
•• Our definition of value and momentum are relevant in a factor picking frame- work.
•• If we have to select three factor time-series to explain the euro investment grade bond
market, we choose DTS, value and momentum in this order.
•• Both value and momentum alternative factors display desirable properties for investors
in a DTS-matched portfolio construction and in a rule-based active management
framework.
•• In our innovative multi-factor rule-based active management portfolio con- struction,
value and momentum display complementary pay-offs.
••We replicate our analysis of EUR-denominated corporate investment grade on a USDdenominated
universe. We identify that in the USD universe, value was already a
significant factor for active managers in the 2003-2008 period and remains significant
in the 2009-2018 period. Factors in the USD universe carry higher collinearity between
themselves than in the EUR universe. We confirm that our implementations in a DTS
matched enhanced index and in a rule-based active management are relevant in the
USD-denominated universe.


Fixed-Income Quantitative
Research
Mohamed.BenSlimane@
amundi.com
Marielle de Jong
PhD, Head of Fixed-Income
Quantitative Research
marielle.dejong@amundi.com
Jean-Marie Dumas
Head of Fixed Income
Solutions
jean.dumas@amundi.com
Hamza Fredj
Fixed Income Solutions
Portfolio Manager
hamza.fredj@amundi.com
Takaya Sekine
Deputy Head of Quantitative
Research
takaya.sekine@amundi.com
Michael Srb
Fixed Income Solutions
Portfolio Manager
Michael.Srb@amundi.com

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关键词：Traditional Alternative Investment Corporate investmen

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