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Global Research Platform
We have a fully integrated research platform, with an office in the U.S. and an affiliated office in London. A separate set of analysts in Singapore cover Asian issuers for emerging markets portfolios. Our global research team includes:
- 29 investment grade corporate bond analysts
- 13 high yield analysts
- 12 structured product analysts
- 13 bank loan analysts
- 7 emerging markets analysts
- 5 municipal bonds analysts
Our analysts are highly experienced. Senior investment grade corporate bond research analysts average 14 years of industry experience, while our senior high yield analysts average 19 years’ experience.
Our teams’ global and local market expertise permits quick responses to relative value opportunities that can surface temporarily across markets. The teams communicate daily, sharing market analysis and firsthand knowledge of events unfolding in their respective locations. This platform helps us quickly take advantage of opportunities across the global credit markets, benefiting clients worldwide.
Investment Grade Corporate Bond Research
Our investment grade corporate bond research team is based in the U.S. and our affiliated office in London. It covers nearly 600 issuers, including approximately 200 issuers headquartered in Europe and 400 issuers headquartered in the U.S. or other developed countries. The team screens the U.S., European, and global bond markets, using fundamental credit research to identify individual securities that offer attractive value.
Analysts focus primarily on issuers with $250 million or more outstanding, focusing primarily on the largest issuers that meet our size, quality, and liquidity objectives. We follow nearly 90% of the issuers in major U.S. corporate bond benchmarks on a dollar-weighted basis.
Analysts are organized by industry/region. Senior analysts specialize in two to three industries and cover approximately 40-60 issuers within those industries/regions. Analysts are teamed with portfolio managers covering the same securities from a trading perspective.
Leveraged Finance Research
Credit analysis is the cornerstone of the investment process. Our analysts operate within a single integrated Leveraged Finance Research Group: high yield analysts focus on large public companies that issue both high yield bonds and bank loans, six bank loan analysts focus on private and middle market U.S. issuers, and seven focus on European issuers. Analysts are located in both Newark, New Jersey and our affiliated office in London. The Head of Credit Research provides oversight to the research process for all issuers.
High Yield Bond Research
High yield credit research is conducted by our high yield credit research staff and high yield portfolio management team. Dedicated analysts focus exclusively on analyzing high yield debt. Each high yield analyst specializes in three to five industries and follows 30 to 45 issuers within those industries. This focused approach enables them to not only seek to capitalize on relative value opportunities among different issuers, but importantly, to seek to identify and invest in the best risk/reward opportunities within each issuer’s capital structure.
In total, Prudential Fixed Income’s credit analysts follow more than 400 high yield issuers across more than 40 industries. As part of the credit analysis process, our analysts assign internal ratings to all high yield bonds considered for purchase. These ratings are generated independently by our credit analysts following the credit review process.
The high yield portfolio manager and sector managers are also organized by industry/subsector, with each manager closely aligned with the research analyst covering the same industry, resulting in a manager/analyst team with both in-depth knowledge and broad perspective on high yield issuers in the industries they cover. This team approach also permits us to cover issuers not always followed closely by other broker/dealers or other asset managers.
Bank Loan Credit Research Process
Our research approach is organized to cover a broad universe of bank loan issuers. In total, our analysts actively follow approximately 400 bank loan issuers. These include approximately 150 high yield companies that also issue bank loans, approximately 100 middle market and private bank loan issuers, and more than 150 European bank loan issuers, primarily mid- to large-cap private issuers.
Analysts look for certain key criteria, and once their analysis is completed, the analysts make a recommendation and prepare a formal credit report, assigning each issuer an internal credit rating. The issuer is added to the Fundamental Ranking Matrix of Bank Loan Issuers, which is updated quarterly. If it is a high yield bond issuer, it is also added to the High Yield Relative Value Matrix. Full credit reports are updated annually. Financial projection models are updated with each earnings release.
Once the credit assessment is completed, the analysts and portfolio managers share market-related information to jointly analyze all opportunities.
Structured Product Research
Prudential Fixed Income has a structured products research staff that is dedicated to researching asset-backed securities, commercial mortgage-backed securities, and non-agency mortgage securities. This team is organized by subsector, with each analyst specializing in approximately two to six subsectors. Specialization enables the analysts to maintain views on the collateral quality of most issuers in each analyst’s asset classes, from large to small issuers.
Securities that are purchased tend to be focused in five subsectors: 1) commercial mortgage-backed securities, 2) residential real estate, 3) credit cards, 4) auto loans, and 5) auto leases. These five sectors dominate issuance in the asset-backed securities market and tend to offer the most liquidity and relative value trading opportunities.
Our structured product analysts maintain ongoing views on overall valuations of each subsector itself, as well as perform in-depth credit analysis and structural and servicer review on individual issuers in the subsectors in which they specialize. Analysts follow a disciplined credit analysis and underwriting process that has three primary components: 1) analyze underlying collateral, 2) perform structural review of the issue, and 3) perform a review of the servicer.
Our Quantitative Research Group supports both the structured product portfolio management and research teams with proprietary models and analytics.
Kicking the Tires
We prioritize firsthand fundamental research, with our analysts generating their own research opinions internally. We believe direct contacts at issuing companies provide the most valuable sources of information. Our corporate bond analysts typically conduct up to 2,000 meetings or conference calls with company management each year. Given our size and market presence, companies conducting “new issue” road shows typically include a stop at Prudential Fixed Income’s headquarters in Newark, New Jersey (U.S.), or one of our affiliated offices in London or Singapore.
Our analysts attend numerous industry and other conferences throughout the year, at which issuers often present updates on their companies. We include on-site visits as part of our credit review based on the type of company we are analyzing and our judgment as to the relevance of the information we would gain from an on-site visit. An on-site visit to a company that operates a small number of refineries or a steel mini-mill, for example, would be relevant in that the success of that company depends heavily on the size, quality, and efficient usage of its production facility. In visiting the steel mini-mill, our analyst would get a good sense of the modernity of the facilities, how close to capacity the facility is operating, and whether there are signs of any environmental problems, among other things.
For other types of corporate issuers, an on-site visit to company headquarters is not a particularly relevant exercise. A visit to the headquarters of, for example, a large financial services organization would likely result in little additional information than that gained from meeting their management in our offices or at a conference.
Our analysts also obtain external research on the publicly traded companies in which we invest. Most companies are required to file documents with the SEC and other country-specific regulatory authorities and also disclose in-depth quarterly financial information through subsequent filings. We also utilize independent research firms and subscribe to specialized industry news services, such as Debtwire.
Comprehensive Research Approach
For corporate, high yield bond, and emerging markets debt, we overlay our fundamental research with a disciplined evaluation process that ranks each security by its current relative value as well as its creditworthiness. We believe this two-pronged approach—beginning with fundamental credit research, then subjecting those findings to a more quantitative overlay—gives us a major competitive advantage in credit research.
Municipal Bond Research
Research is conducted by our senior municipal bond research analysts who average 23 years of investment experience. Analysts specialize by sector and provide in-depth research coverage for a universe of approximately 500 issuers. Additionally, they leverage investment grade corporate and high yield credit analysts for sectors that overlap.
Individual security selection and sector rotation comprise the majority of alpha in the Municipal Bond Strategy. All research opinions are generated internally, although external perspectives inject rigor into the analysis process. Internally-generated research is supplemented with market intelligence from the major broker/dealers external ratings agencies, and vendors.
As of March 31, 2014