Asian listed credit: An engine of yield and liquidity 

For advisers hunting yield in a higher-for-longer environment, Asia’s listed credit market may provide a compelling case for inclusion in the portfolio. For John Stover, portfolio manager at Tribeca Investment Partners, this overlooked corner of fixed income presents a rare combination: equity-like returns, fixed income-style volatility and real liquidity. “I think a lot of people, when they’re outside looking in, just hear ‘Asia’ and think ‘risk’,” Stover says. “But if you actually look at the data, it doesn’t add up”. 

Stover has spent over a decade immersed in the region’s credit markets, having relocated from San Francisco to Singapore in 2010 to pursue what he saw as one of the most compelling growth stories in global credit. “From 2010 to 2020, the US dollar corporate bond market in Asia grew by 500 per cent,” he notes. “The high-yield part of the market grew even faster, about tenfold.” That expansion, combined with structural mispricing, lit the fuse for Tribeca’s Asian credit strategy. 

At the core of Stover’s investment philosophy is the ability to balance between high-yield and investment-grade bonds. “We typically run 40 per cent to 60 per cent in each,” he explains. This dual approach provides built-in diversification, with investment-grade bonds offering stability in risk-off environments, while high-yield serves as a more direct play on economic growth expectations. “We can flex between countries, sectors and credit ratings depending on the opportunity set.”

That flexibility matters in a region marked by macroeconomic and political dispersion. Tribeca’s current bias is toward markets like India, Indonesia and Australia, which offer structural middle-class growth and domestic resilience. “These economies are less sensitive to US-China trade tensions and global macro volatility,” Stover says. He notes that the portfolio was consciously tilted toward these markets ahead of recent flare-ups in geopolitical risk. 

Stover’s approach is fundamentally bottom-up, driven by a combination of value and event-driven strategies. “On the value side, we’re looking for mispriced credits where the yield on offer is higher than the fundamentals suggest it should be,” he says. Event-driven trades, on the other hand, focus on near-term catalysts such as mergers, asset sales or equity raises. “In some cases, we’ll buy stressed credits trading at 60 to 80 cents on the dollar where we think the chance of default is low. But we don’t touch distressed; there’s no defaulted bonds.”

Despite targeting 8 per cent to 12 per cent returns through the cycle, Stover is emphatic about avoiding style drift. “We would never loosen our credit standards or dip into CCC-rated names just to chase yield,” he says. Instead, alpha is generated through active management. “We run a concentrated book of 30 to 40 names, each with a target price, and we’ll recycle capital as bonds reach that target”. 

One under-appreciated area in the strategy is convertible bonds, specifically, what Stover calls “busted converts.” These are bonds with little to no equity sensitivity, often overlooked by traditional bond managers and abandoned by equity arbitrageurs in falling markets. “Two years ago, we were buying (Chinese tech giant) Meituan’s convertible bonds at 8 per cent yield, while their vanilla bonds traded at six. Same credit, but mispriced because mutual funds don’t want converts and arbitrage funds had to unwind.”

Tribeca’s strategy is long-biased but makes judicious use of shorting and derivatives to hedge macro and country-specific risk. “We’ll short individual bonds or use credit default swaps to take down exposure,” Stover says. In doing so, the strategy can maintain low-to-mid-single-digit volatility, which is crucial for advisers seeking to position the fund within a traditional fixed income allocation. 

Importantly, currency is not a source of alpha. All vehicles are fully hedged back to the currency of the share class, US dollars, Australian dollars or Japanese yen. “That allows us to roam freely across the region without introducing FX risk into the portfolio,” he explains. 

For advisers used to domestic hybrids or traditional bond funds, Asian listed credit offers a compelling replacement. “Historically, a BB-rated bond in Asia would yield 1.5 per cent to 2 per cent more than the same-rated bond in the US or Europe,” Stover notes. “And yet, default rates in Asia ex-China have actually been lower than in both regions, 1.4 per cent a year versus 2.7 per cent a year in the US for the past 20 years.” Liquidity is also real: the fund holds large, listed names that trade daily, with monthly liquidity at the fund level. 

Recent structural shifts further bolster the case. “Regulatory changes have made bank hybrids less attractive in Australia, and we think this asset class can help fill that yield gap,” Stover says. Moreover, the combination of falling global interest rates and a weakening US dollar has historically triggered inflows into Asian credit. “You’re starting to see it in fund flows and bank order books again,” he says. “US and European investors are returning to the region.”

What does this mean for portfolio construction? Stover sees his strategy as a bridge between public and private markets. “We can deliver private-credit-type returns, but with real liquidity,” he says. “We’re also seeing more interest from investors who want equity-like returns but without the volatility of equities. In our market, that’s possible.” 

As capital slowly rotates back into Asian fixed income, Stover believes the region is poised for a renaissance. “Global institutions spent the last decade pouring capital into private markets. But we’re seeing a shift back toward listed credit, and Asia offers some of the best opportunities, especially for advisers willing to look beyond the traditional toolkit,” he says. For advisers seeking yield, liquidity and consistent performance, this may be the time to reconsider where the most compelling fixed income ideas are coming from. 

Laurence Parker-Brown

Laurence Parker-Brown is head of content at The Inside Network and managing editor of The Inside Adviser and Investor Strategy News.