25 January 2021

Flash G Fund Hybrid Corporate Bonds – Bilan 2020

The net performance of the fund over one year is 1.85% (share class I-C LU2023296168, from 07/01/2020 to 07/01/2021). Since its launch on 7 October 2019, the fund's performance stands at 2.60% (share class I-C, data as on 7 January 2021) after fully recouping the drawdown of the spring of 2020 by 18 December.


The net performance of the fund over one year is 1.85% (share class I-C LU2023296168, from 07/01/2020 to 07/01/2021). Since its launch on 7 October 2019, the fund’s performance stands at 2.60% (share class I-C, data as on 7 January 2021) after fully recouping the drawdown of the spring of 2020 by 18 December.

The net performance of the fund since the end of 2019 is 1.81% (share class I-C LU2023296168, as on 07 January 2021).

Net performance since 31 December 2019

Data as on 07 January 2021. Source: Bloomberg.

These indexes are quoted purely for information purposes and do not constitute benchmarks for the fund. Past performance is not a reliable indicator of future performance.

Data as on 7 january 2021

Source: Bloomberg. Volatility on a daily basis (in %) The indexes are quoted purely for information purposes and do not constitute benchmarks for the fund. Past performance is not a reliable indicator of future performance.

The main risks associated with the fund are interest rate risk, credit risk, risk intrinsic to hybrid or subordinated debt instruments and liquidity risk.


Market context in 2020

2020 turned out to be the record year for primary market issues in this asset class, with 43.2 billion euros issued over the year. This spectacular growth in the volume of issues was due to the increase in defensive issues by oil companies.

Volume of hybrid issues on the primary market (in billion euros)

Data as on 31 December 2020. Source: JP Morgan, Groupama AM

The publication of the Phase 3 study results for the Pfizer vaccine, followed by those of Moderna, provided the risk-on signals for the markets. On the hybrid debt market, the 200 bps threshold of additional yield of Hybrid debts relative to Inv. Grade Corporate was crossed by a wide margin, aided by a less exuberant primary market.

Comparative premium chart of Investment Grade debt and Hybrids (in basis points)

Data as on 15 January 2021. Source: Bloomberg.


For 2021, we are anticipating a decline in the primary market in terms of volume, with a return to gross issue levels of 25-30 billion euros. Consequently, with less than 10 billion euros of bonds having call dates in 2021, we consider that a net total of 15 to 20 billion euros of issues will be low, given the current asset class attractiveness for investors.

In a context of emergence from the health crisis, albeit apparently more slowly than many people had anticipated), in combination with the continuing purchases by the central banks of debt issued by the same Investment Grade issuers (considered to be of high credit quality, with a minimum rating of BBB- by the Rating Agencies), we anticipate that the credit spread between hybrid and senior debt will return to levels close to those of late 2019 / early 2020, i.e. a little over 100 bps, compared to 160 bps at present.

This should also enable hybrid debt to catch up its gap behind the other credit asset classes:

Z-spread of 3 credit indexes, standardized at 100 at the end of Oct. 2019

Data as on 15 January 2021. Source: Bloomberg. This graph shows the Z-spread risk premiums, standardized on a base of 100 as from 31/10/2019 The Barclays Hybrid Index switched to daily publication on 15 July 2020. The results are smoothed prior to publication.


Issuer News


At the end of November, the Group returned to the market for the second time since March 2020, issuing 1 billion euros of senior debt at 3.25% with maturity date in 2026.

In this way, the Group refinanced most of its 3.1 billion euros with maturity in 2021. Lufthansa confirmed that would not exercise the early call of the hybrid bond in February 2021, and so its coupon will change from 5.125% to a coupon with a swap rate of + 4.873%. The next call date of this bond will be in 2026.

This decision was widely expected, given the current situation of the Group. The Group refrained from mentioning payment of the coupon anticipated in February. Although our central scenario includes payment of the coupon, we believe that the yield (6% to 2026) is not very attractive in view of the downgraded credit quality of the Group.


Heimstaden Bostad

The credit rating of this Swedish real-estate company was upgraded one notch by the S&P Agency from BBB- to BBB, with its outlook judged to be stable. Explaining the upgrade, the Agency noted that the Group had reinforced its residential portfolio while maintaining good financial discipline (acquisitions were accompanied by increases in capital). For example, S&P observed that the company’s portfolio had attained a value of 139 Swedish crowns (SEK) at the end of Q3 2020, compared to SEK 90 billion at the end of Q3 2019, while at the same time improving its debt-to-capital ratio from 56% to 51% and increasing its interest coverage ratio, against EBIT (earnings before interest and tax), to 2.5 times interest earned, as against 2.1 times the previous year.

This is the first upgrade of a European Investment Grade real-estate company of significant size for 12 months. The Group has been able to implement this growth policy without adversely affecting its ratios due to the support of its shareholders, in particular the pension funds, which hold 49% of the equity (Ericsson and Sandvik).

The Group has also reiterated that its longer term aim is to achieve a BBB+ rating, which would automatically put its hybrid debts into the Investment Grade category (BBB-).

These developments have not surprised us, and the hybrids issued  by this real-estate company have constituted a core position of the portfolio for many months, with more than 2% of the assets.



After trending very positively in the first week of January, with the hybrid senior spread narrowing to 140 bps, the hybrids market has stabilized at approximately 160 bps (as on 15 January 2021). Although this level is below those observed in 2020, it remains well above those of the end of 2019 and beginning of 2020 and is considered to remain relatively attractive.

In this portfolio, we took profit on a portion of our positions having maturity dates before 2023 and providing low yield (for example, Stedin call 21 with 0.37% yield, Telia call 23 with 0.50% yield), and we reallocated the cash to later call dates and to securities offering higher returns (for example Infineon call 28 with 2.12% yield). We also actively participated in the recent issues offering primary premiums that we considered to be once again attractive.

Our sectoral allocation continues to prioritize the defensive sectors.

Breakdown of the fund by sector as on 31/12/20

Source: Groupama Asset Management.

The yield of the portfolio is 1.8% for a duration of 4.1 and an average rating of Baa3/BBB- as on 15 January 2021.


By Boris Nesme, Product Specialist at Groupama Asset Management.


This document is not intended for “non-professional” European Union investors, as defined in “MiFID” (EU Directive 2004/39/EC dated 21 April 2004) or any other local regulation. Similarly, in Switzerland, this document is not intended for investors not classified as “qualified investors” under the applicable legislation. As a general rule, this document must not be transmitted to private clients or individuals as defined in any legislation, nor to “US Persons”.

This document contains information concerning G FUND – HYBRID CORPORATE BONDS, a compartment of G Fund (also referred to as “the SICAV”), a Luxembourg-based undertaking for collective investment in transferable securities (UCITS), covered by part I of the Law dated 20 December 2002 and constituted in the form of a “SICAV”(Société d’Investissement à Capital Variable – a European publicly traded investment company structure for open-ended funds). The SICAV is registered with the Luxembourg Trade and Companies Register under number B157527. Its registered office address is 5, allée Scheffer, L-2520 Luxembourg. G Fund was authorized for trading by the Luxembourg financial authority CSSF (“Commission de Surveillance du Secteur Financier”). 

Investors are advised that not all compartments of the SICAV are necessarily registered, authorized for commercialization or accessible to all investors in all jurisdictions. Before subscribing to a compartment, the client must take due note of the complete prospectus of the SICAV and of its latest annual and half-yearly reports and its articles of association. These documents are available free of charge at the registered office of the SICAV or at the registered office of the authorized representative accredited by the competent authority in each jurisdiction concerned.

Investment in the compartments of the SICAV involve risks. Investors must fully inform themselves of these risks before any subscription and must make sure that they have understood the present document. We recommend that all potential investors contact an advisor to determine whether this investment is suited to their profile.

The performance of a compartment is not guaranteed but can vary both upwards and downwards. The past performance of a compartment is not a reliable indicator of the future performance of the same compartment. Performance is quoted excluding the costs and commissions charged for subscription/redemption.

This document is not an investment recommendation. Similarly, this document does not constitute an offer of purchase or request to sell in countries where the compartments of the open-ended fund are not authorized to be traded or where any such offer or request would be illegal.

The commercial teams of Groupama Asset Management, the G FUND management company, are at your service if you wish a personal financial recommendation.

Published by Groupama Asset Management – Registered office: 25 rue de la ville l’Evêque, 75008 Paris – Website: www.groupama-am.com