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DYNAMIC INCOME sub-fund and the Diaman Factor

Updated: May 10, 2018

Diaman has developed an #innovative #strategy applied to #Dynamic #Income sub-Fund.

The core of the #Dynamic #Income sub-fund is composed by a mix of #Government and #Corporate #Bond, selected according to a #quantitative #method, based on a #multifactorial model.

The objective of the model is to identify those #bonds offering a superior combination of #yield and #creditworthiness. Diaman team has developed an innovative #indicator called #Diaman #Factor that allows to synthesize in a number the following variables:

Diaman Factor=f(FV Spread,Mkt Spread,EDF,D,LGD)

Where: FV Spread = Fair Value Spread (based on KMV Model provided by Moody’s Analytics); Mkt Spread = Market Spread; EDF = Implied Default Probability at 1 year (based on KMV Model provided by Moody’s Analytics); D = Duration. LGD = Loss Given Default

For example this model would have avoided bonds such as Lehman or Banco Espirito Santo. The #investment #process includes a daily risk control, and a monthly bonds review, in order to have undervalued bonds always in portfolio.

Graphic representation of the default probability estimation, according to KMV Model:

Written by Nicola Bubola — Diaman Team

© 2018 by DIAMAN Capital LTD

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