Case Studies

Controlling DTS Exposure with a Fixed Income Style Model

Client Type:

Global Asset Manager

AUM:

USD 1+ trillion


The Need

The client was already familiar with our capabilities, actively using our customizable stress tests to run historical, transitive and factor-specific stresses and the Axioma Multi-Asset Class Risk Model for stress test risk decomposition.

As they were constructing managed high yield strategies, they needed to understand and manage the types of fixed income factors the portfolios were exposed to relative to their benchmarks.

The Challenge

Fixed income factors are notoriously difficult to define and traditional factor-based fixed income models are typically derived from sector or rating weighted-average spread levels and do not have the explanatory power for bond returns, nor the ability to decompose factor exposures into style-based factors. Specifically, the client wanted to know whether they had Duration Times Spread (DTS) factor exposure on the bets they were taking, which is not something all factor-based fixed income models are capable are doing.

The Solution

The Axioma Factor-based Fixed Income Risk Model aligned well with the client’s approach to portfolio construction and risk management. For instance, it has a broad credit market factor that allows them to measure and control their overall DTS exposure and its contribution to overall active risk. They are also able to do this at the detailed sector, country and currency level. Through our model, they could see the unintended exposures to specific style factors on the bets they were taking. 

The Qontigo Advantage

Superior model

Powered by proprietary methodology, our client was able to glean insights that were not currently available in the market

Flexibility and agility

The model leveraged a DTS methodology in order to achieve the right level of responsiveness for the client’s approach

Collaborative approach

High touch support through to aftersales and willingness to work and evolve together

Axioma Products