Variable hedge profiles
The convexity profile of hedges varies. “In February and March 2020, we were super convex to make outsized gains from extreme widening. In October 2025 we have been much closer to linear exposure without too much convexity. This is partly because we have taken advantage of skew in the equity index option markets to construct put spreads reducing the costs of protection. This involves buying nearer puts and selling more distant puts,” says Parlebas. In October 2025 the puts alone would not make the portfolio market neutral upon a normal market selloff. “Nonetheless, exposure is dynamic, and active decisions to add to hedges or sell down exposure, could quite quickly bring it to market neutral,” says Parlebas.
The strategy has very briefly been slightly net short several times, but its “PV10” sensitivity to a 10% move in credit spreads has nearly always ranged from 0 to 2% of fund NAV and averaged at 0.8%. The average is roughly half of credit market beta, as measured by 100% long only exposure to a high yield index.
Range of credit ratings
Most allocations are typically in bonds with high yield credit ratings, though the strategy seldom trades instruments rated CCC or below. The UCITS prospectus restricts holding cash bonds rated CCC, an approach initially shaped by Amundi’s predecessor, Lyxor. “The UCITS fund is also unlikely to be extremely active in the CCC space or below via Total Return Swap, even though this is allowed,” Parlebas notes.
This is not a limitation for the team; it is a deliberate positioning choice. Chenavari sees the most attractive risk-adjusted opportunities in BB and single-B credits, where structural inefficiencies and dislocations often provide compelling upside without taking on excessive tail risk.
The UCITS fund is more likely to migrate up the rating spectrum and can occasionally find value in investment grade names, especially during extreme dislocations. “In 2020, the market was completely broken for two months with no issuance. The first new issues were top quality names, such as a senior bond issued by HSBC, with a coupon of 5%.
Financials macro and merger trades
The base case allocation is 50% corporates and 50% financials but there is some flexibility to go to 65%/35% either way. Financials have recently been as much as 60-70% of the book, for both top-down and bottom-up reasons.
“From a macro perspective, financials offer one way to play the convergence and compression of Southern European peripheral sovereign credit risk versus core Europe risk. We have been active in Portugal, Italy and Greece,” says Parlebas.
In many of the same countries, M&A in banks can provide some optionality for credit instruments that are, for instance, more likely to receive tender offers after a takeover. “For instance, we also like holding AT1s issued by pure domestic players in Italy, Spain, Belgium and Greece, which could similarly benefit from ongoing merger and acquisition activity,” notes Parlebas.
The currency choice of AT1s can also be optimized based on the yield curve shape and potential roll down. “Short-dated USD paper could provide enhanced carry in some cases,” says Parlebas.
Financials’ credit spreads blew out after Credit Suisse failed in March 2023, but have now reconverged to the same level as average European corporate credit spreads and come round full circle to where they were just before Credit Suisse. “The Credit Suisse story was Swiss-specific and different from the Europe story,” points out Parlebas, who still finds the space attractive partly due to M&A. He even questions whether bank paper should offer any premium over non-financial corporates: “Banks are less risky than some other sectors such as heavily leveraged chemicals. Banks levered 10-12x are now much safer than they were. Solvency, diversification and asset quality have all improved a lot compared to 15 years ago”.
Refinancing and restructuring
Just as Southern Europe is now seen as less risky than parts of Northern Europe, the tables have turned in favour of banks and there have recently been greater fears about certain non-financials. In early 2025, there were concerns about a record refinancing wall in Europe, but Laurencin now finds that the ReFi wall has been postponed because companies have taken advantage of healthy demand from public and private credit investors to refinance large amounts of debt. “May, June, July and September were record months for refinancing, and companies who could not access liquid public markets found private credit instead. The use of private debt to refinance public issues is a growing trend,” says Laurencin.
Incidentally, new issue premiums have made a marginal contribution to recent returns. “This is partly because the premiums have been quite small but also because the fund’s growth in assets has diluted their contribution,” points out Laurencin.
Chenavari’s refinancing tally relates to bonds. The broader discussion of credit refinancing also includes leveraged loans, which UCITS cannot invest in. “We see some problems in loans, but they have not thus far contaminated bond issuers,” Laurencin observes. Nonetheless, some companies do need to restructure their debt in various ways. “Some restructurings, such as Pizza Express, were relatively straightforward amend-and-extend processes, but others are much more complex,” notes Parlebas. Chenavari is also closely monitoring the rise of “creditor-on-creditor violence,” where techniques such as uptiering can significantly reshuffle the capital structure, making some instruments more senior while pushing others further down the waterfall. “These stories are very specific to particular bonds,” Parlebas emphasises.
