Policy Boost Spurs Development Opportunities for Fixed-Income Enhancement Products

Under a basket of favorable policies, the stock and bond markets have once again demonstrated the "seesaw" effect. Amid the surge in equity assets, how should one adjust bond investment strategies? Does the bond market still possess long-term investment value?

Wu Qiujun, the fund manager of CITIC Prudential Enhanced Income Bond (LOF), stated that after several rounds of adjustments, bond yields have returned to a reasonable range. The effect of this round of policy benefits is strong, and the confidence of market entities and corporate expectations will be significantly improved. Assets with equity rights are expected to rebound, providing a good investment opportunity for fixed income enhancement products.

Pursuing a smooth, low-volatility, and steadily upward net value curve

It is reported that Wu Qiujun has served as a researcher at China People's Insurance Asset Management Co., Ltd. and a researcher in asset allocation at Great Wall Guorui Securities. He joined CITIC Prudential Fund in 2021 as a senior researcher and is currently the fund manager for several bond funds at CITIC Prudential.

Wu Qiujun focuses on asset allocation and trading timing, with a steady style. In terms of strategy, he manages according to a CPPI-like (Constant Proportion Portfolio Insurance) strategy, pursuing a smooth, low-volatility, and steadily upward net value curve, with equity allocation not being too high. Bond assets mainly target high-grade bonds, bonds with good creditworthiness from central enterprises, high-coupon assets, and high-grade credit bonds. The enhanced part of the income mainly comes from two aspects: first, interest rate wave transactions, accumulating a safety cushion through trading opportunities to strive for net value thickening; second, increasing the income from the interest rate part through adjustments in duration and leverage strategies.

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"The part that exceeds pure bond returns mostly comes from high-intensity monitoring," he said. In the situation where coupon income is continuously squeezed, to obtain more high returns, one must be more diligent and not give up any basis point.

Specifically, his bond investment is divided into four steps. The first step is to allocate high-grade medium-term credit bonds to strive for coupon income; the second step is to conduct interest rate bond wave operations to obtain capital gains; the third step is to invest in convertible bonds with high yield to maturity, seeking configuration income; the fourth step is to allocate low valuation and turnaround industries within the scope permitted by laws and regulations when stock opportunities arise. When the win rate indicator turns positive, allocate stocks with a lower position to strive for dividend income and capital gains, and rising stock prices can contribute to the thickening of the portfolio's returns. While controlling daily fluctuations, strive to excavate returns that exceed pure bonds throughout the year.

In terms of risk-free yield, Wu Qiujun will first judge the current economic cycle's position and its marginal changes and policy trends, especially changes in monetary policy, based on a model of economic leading indicators, to determine the use of the entire portfolio, duration, and leverage.

In terms of underlying asset allocation, in addition to judging the position of the economic cycle, Wu Qiujun will also fully consider the debt cycle and make judgments on money and credit. According to the changes in the credit cycle, determine different strategies and combinations. At the same time, at the micro level, try to prevent liquidity shocks or individual bond defaults.

In terms of individual bond selection, Wu Qiujun mainly focuses on the certainty of high-coupon varieties with good fundamentals. In terms of leverage strategy, closely track policy changes and adjust the leverage level in a timely manner according to market sentiment and changes in the money market. In terms of duration strategy, flexibly use duration strategy and riding strategy according to market research and yield curve shape, participating in wave operations while ensuring a safety margin.Fixed Income Enhancement Products May Welcome Development Opportunities

With the recent significant rise in the stock market, the bond market, which was previously steadily increasing, has been impacted to some extent. Looking at the future market, Wu Qiujun stated that after the adjustment, the bond pricing is relatively reasonable. It is necessary to pay attention to the chain of transmission following the policy's favorable effects, which is "policy effect - expectation change - marginal change in fundamentals." Moreover, the concentrated introduction of policies can help reverse deflationary expectations, and bond pricing may undergo certain changes. Against the backdrop of ongoing asset allocation pressures and a greater emphasis on quality in fundamentals, the bond market is more likely to exhibit a structurally volatile trend.

Regarding the specific categories that are optimistic about, Wu Qiujun said that the main focus is on the end-of-year allocation opportunities after the adjustment of this round of credit bonds. If the policy bottom becomes apparent and subsequent favorable policies continue to be introduced, stocks and convertible bonds may present opportunities at the index level, which would be beneficial for fixed income enhancement products.

In addition, subsequent attention will be paid to changes in market expectations for domestic fiscal stimulus, the overfull expectation of overseas easing, and the crowdedness of risk assets at certain stages.