Tradex Global Advisors adds Dr. Ed Altman to its Short-Biased High Yield Team

Greenwich, CT, May 20, 2014 – Tradex Global Advisors, LLC, an alternative asset management company, announced today that Dr. Ed Altman has joined the high yield team at Tradex in an alliance to help execute the firm’s Short-Biased High Yield strategy.  Dr. Altman is the Max L. Heine Professor of Finance at the Stern School of Business, New York University.  He is also the Director of Research in Credit and Debt Markets at the NYU Salomon Center for the Study of Financial Institutions and a well-known high yield bankruptcy expert.

“We are fortunate to have Dr. Altman work with us to help execute and promote our Short-Biased High Yield Strategy.  He is the preeminent authority on high yield credit and his Z-Score analytics have proven successful over a long time horizon,” stated Michael Beattie, Tradex founder and Chief Investment Officer.  “I found the Tradex philosophy of identifying specific opportunistic investments appropriate now and in the foreseeable future.  Their specific strategy to short worst of breed high yield companies is timely given the overheated market in high yield credit,” said Dr. Altman.

“We plan to incorporate and utilize the Z-Score metric as part of our risk management process,” added Richard Travia, Head of Risk Management for the strategy.  “The Z-Score attempts to predict the probability that a company will go into bankruptcy within two years of the analysis,” added Travia.

The Tradex Global Short-Biased High Yield strategy is an actively managed, short-biased credit portfolio that attempts to provide an asymmetric return profile, using a proprietary liquid portfolio of cash bonds.  The Fund expects to capitalize on current mispriced credits in the $1.5+ trillion high yield marketplace.  Short positions are typically longer dated, unsecured/subordinated, fixed rate bonds.

Dr. Altman has an international reputation as an expert on corporate bankruptcy, high yield bonds, distressed debt and credit risk analysis. He was named Laureate in 1984 by the Hautes Etudes Commerciales Foundation in Paris for his accumulated works on corporate distress prediction models and procedures for firm financial rehabilitation and awarded the Graham & Dodd Scroll in 1985 by the Financial Analysts Federation for his work on Default Rates on High Yield Corporate Debt.  He was named "Profesor Honorario" by the University of Buenos Aires in 1996 and is currently an advisor to the Centrale dei Bilanci in Italy and to several foreign central banks.  Professor Altman is also the Chairman of the Academic Advisory Council of the Turnaround Management Association.  He received his M.B.A. and Ph.D. in Finance from the University of California, Los Angeles.  He was inducted into the Fixed Income Analysts Society Hall of Fame in 2001, President of the Financial Management Association (2003) and a FMA Fellow in 2004.  In 2005, Professor Altman was named one of the "100 Most Influential People in Finance" by Treasury & Risk Management magazine.

About Tradex Global Advisors

Tradex Global Advisors, LLC (TGA) is headquartered in Greenwich, Connecticut.  TGA manages opportunistic internal hedge funds and niche-focused fund of hedge funds.  With its targeted focus, TGA seeks to identify very specific trading opportunities and to partner with highly experienced teams to execute the strategy.  TGA was founded in 2004 and is managed by Jeffrey Trongone, Michael Beattie and Richard Travia.  TGA was an affiliate and spinout of Tradex Capital Markets, a large and successful macro fund of managed accounts that launched in 1998, collectively with peak assets of more than $3 B.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

FLASH UPDATE: Alarm Bells are Ringing, High Yield is Overheated

Alarm Bells are Ringing, High Yield is Overheated

• “As a percentage of advanced economies, total credit – including corporate, government and consumer debt – is 30% higher than it was in 2007.  I don’t think the economy is recovering at all.  We have in the American economy a slowdown,” said Marc Faber. 

• “All the risky things that were happening back in ’06 and ‘07 are back again to the same level, if not more. So we are in the beginning of a credit bubble…,” said Nouriel Roubini. 

• “The last time junk bonds were overvalued by this much for this long was in mid-2008, just before Lehman collapsed and the financial crisis took hold,” said Marty Fridson.

• “I find it difficult to love a 4.0% yield in junk bonds while hating a 4.0% yield in Treasurys,” said Jeffrey Gundlach.

We have been discussing the extreme overvaluation of the corporate high yield bond market for several quarters now.  We have been pragmatic the entire time, understanding that the current environment is still awash with liquidity from the Fed.  We continuously question our thesis, as part of our process.  As we continue down the path of identifying mispriced, over-levered and vulnerable credits, we conduct market surveillance and listen to what other successful investors think.  Look at the quotes above.  Read them forward and backward, google “high yield bubble” yourself, they (we) are not alone... 

We are as convinced as ever that being short specific credits in this fully-heated credit environment, at levels where there is no upside for the bonds, is not only the right direction, but also an extraordinary opportunity.  The cost to be short today is historically cheap and argument to be short is as strong as ever. 

March and April were very difficult months for hedge fund managers, and I suspect that May will also prove to be challenging.  As correlations of hedge funds continue to rise, there are many investors that we have spoken to over the last year that have made asset allocation shifts in their respective portfolios to minimize the impact of an isolated burst in the current high yield bubble.  We applaud that forward thinking, and suggest that it is now time to be aggressive.  Build short positions in high yield credit now, while yields are compressed, prices are high, spreads are tight and overall interest rates are low.  Once the market loses its bid, free-falling high yield bonds will be hard to take advantage of.  Break the glass now, while you are still able. 

Happy Mother's Day to all of the Mothers out there.  Enjoy your Sunday and celebrate all that is good in life.  

Richard Travia

Director of Research

FLASH UPDATE: Yellen points to some over-reaching for yield in the HY market this morning

A snippet from this morning's testimony by Chairwoman Yellen

Chair Janet L. Yellen

The Economic Outlook

Before the Joint Economic Committee, US Congress, Washington DC

May 7, 2014

"...In addition to our monetary policy responsibilities, the Federal Reserve works to promote financial stability, focusing on identifying and monitoring vulnerabilities in the financial system and taking actions to reduce them. In this regard, the Committee recognizes that an extended period of low interest rates has the potential to induce investors to "reach for yield" by taking on increased leverage, duration risk, or credit risk. Some reach-for-yield behavior may be evident, for example, in the lower-rated corporate debt markets, where issuance of syndicated leveraged loans and high-yield bonds has continued to expand briskly, spreads have continued to narrow, and underwriting standards have loosened further..."

We are starting to see some differentiation in the HY credit market, and that could continue the rest of the year.

Richard Travia

Director of Research

FLASH UPDATE: Recent Events Highlight the Benefits of a Liquid Mortgage Relative Value Strategy in a Rising Rate Environment

Recent Events Highlight the Benefits of a Liquid Mortgage Relative Value Strategy in a Rising Rate Environment

A liquid mortgage relative value strategy seeks to capture the yield advantage of government guaranteed MBS over Treasury securities utilizing the highly liquid mortgage TBA market.  This strategy has historically exhibited a high Sharpe Ratio across market cycles; however it is particularly well suited to perform well in a rising interest rate environment.  Events over the past year, and in particular since the Fed’s March 19^th meeting this year, provide a perfect environment to evaluate the efficacy of this assertion.

In the 2^nd quarter 2013, Chairman Bernanke suggested that the Fed’s QE program might begin to taper near the end of 2013 and stop altogether sometime near the conclusion of 2014.  Treasury rates have risen about +100 bps since that time – perhaps a perfect starting point to evaluate the assertion discussed above. 

However, the initial reaction of the mortgage market was for mortgage spreads to actually widen.  In fact they continued to widen until December 2013 when the Fed announced that it would immediately commence tapering its asset purchases in a measured and methodical manner.  Clearly, this departure from historical behavior was caused by the markets awaiting clarity as to the actual timing and trajectory of the Fed’s upcoming Taper program.  Once the Fed provided that clarity in December 2013, mortgage spreads have consistently tightened since that time and are now approaching the spread levels last seen in April 2013.  We suspect there continues to be room for additional tightening as rates are expected to continue to rise and Tapering continues on its glide path to completion.  We can look to more recent events to provide additional evidence of this.

On March 19^th of this year, the Fed dropped its explicit unemployment target, broadened its discretion for when it may begin to raise rates and bumped its economic projections higher.  Taken together this was viewed as a more hawkish tone than previous language.  And as a result, Treasury rates rose +20 bps on the day and mortgage spreads did indeed tighten +7bps; both strong moves. 

Conversely, on April 9^th the Fed minutes to this same meeting were released, downplaying the hawkish tone to the onset of future rate hikes.  Treasury yields dropped -5 bps on the day and mortgage spreads tightened -4 bps as well.

In summary, our April 14^th column discussed how a Liquid Mortgage Relative Value Strategy has responded well to rising rate environments over the past 30 years.  Recent events provide additional anecdotal evidence of this.  In future columns, we will evaluate other attractive characteristics of this strategy, such as its low correlation to equity, bond and commodity markets.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global