With no exposure to US subprime mortgages, BNP Paribas' Parvest Euro Medium Term Bond Fund weathered the subprime crisis last year. The fund based its analysis on economic quantitative models which identified a rise in euro yield in the first half of 2007.
'It showed us at the beginning of the summer that a crisis had emerged. Thanks to our overexposure in duration, we could take advantage of the flight to quality towards government bonds,' said Vincent Trouillard-Perrot, chief executive for Asia (ex-Japan), BNP Paribas Investment Partners.
The fund had placed a lower allocation in corporate credit because its management team thought the low credit spread did not offset the risk.
'At the end of the year, we began to build a position in those bonds which gave attractive spreads. We were very selective and bought mainly bonds issued by euro continental banks that had a well-balanced business. We also implemented some yield-curve strategies to take advantage of the opportunities in the bond market at this point, which added value to the portfolio.'
A team of 11 portfolio managers and 16 credit and quantitative analysts manage the fund. According to Mr Trouillard-Perrot, four principles are applied to the fund's management style. The first is that fundamental analysis is key to managing a euro aggregate portfolio over the medium to long-term.
Secondly, the management team believes that identifying market inefficiencies is essential to exploiting volatility in the fixed-income markets through additional, short-term tactical bets.