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Introducing CoreScores: Your Comprehensive Credit Quality Compass

By February 13, 2024No Comments

In our quest to continuously innovate and provide insightful tools for the fixed income market, we are proud to introduce CoreScores—a sophisticated analytical feature designed by our analysts to enhance investment decision-making for professionals. CoreScores distills the complexities of the market into clear, actionable insights, addressing the need for in-depth fundamental analysis paired with relative value assessment.

To gain a deeper understanding of how CoreScores was conceived and how it can revolutionize portfolio construction, risk management, and long-term credit quality perspectives, we sat down with our Global Head of Research, Chris Snow for an exclusive interview:

Could you walk us through the inception of the CoreScore and what specific needs in the market it was created to address for fixed income professionals?  

 

CoreScores share with clients more of the analyst’s process in developing investment recommendations.  A key role for CreditSights in the market is to inform the investor’s decision-making, and there’s two parts to that process.  One is on the fundamental side, identifying the key investment considerations, prioritizing them, and taking a view on how the considerations will play out.  The second is the relative value – whether the fundamental consideration is appropriately priced in the market.

The CoreScore is meant to present the fundamental framework to clients which underpins our own relative value perspective in order to inform the client’s investment decisions.   We often hear from clients, particularly buy-and-hold accounts, who want additional context on an Outperform, and for more precise distinction of the impact of the fundamentals on the investment decision.

 

The CoreScore is underpinned by six subfactors, from sector risk to profitability. How can clients use this nuanced analysis to their advantage in portfolio construction and risk management? Can you provide an example of how this dynamic scoring might influence an investor’s approach to a particular sector or security?  

 

The analysts have ranked their coverage on these six subfactors, and we rolled up those rankings to four investment categories: Core, Strategic, Moderate Risk, and Speculative.  Clients can use our tools to assess and identify which of the credits in their portfolios are outside of their target risk tolerances, according to the perspectives of our analysts.  If an investor is looking for highest quality credits, they would focus on the Core category, and within that grouping, the client can use our website tools to incorporate the fundamental subfactors.

Further, a client can use the tools on our Company tab to see all of this data, which can be sorted and filtered, or downloaded to Excel for the same exercise.   Clients who are particularly concerned about liquidity can use these tools to identify which of the credits in their portfolio are outside of the sector or rating peer group.  They can do the same for Sector Risk, Profitability, or any of the sub-factors in this analysis.

 

Could you explain how the CoreScore integrates with our existing suite of research products and services, and how it complements the tools that fixed income professionals already rely on?  

 

The CoreScores are connected to our recommendations.  Clients, particularly those with a buy-and-hold focus, have long asked for a way to separate the 6-12 month trading view and a longer term investment perspective.  The CoreScore provides the context to help investors see the extent to which an Underperform is solely based on differences in trading levels, versus a directional view on credit quality.

Clients can also use the Companies section on the website to look at the CoreScores against the Credit Quality Scores (CQS) generated by our Risk Products suite.   The Companies section allows clients to see where the signals from the quant model (CQS) and from the analysts (CoreScores) are in alignment or are indicating opposing trends.  This can help portfolio managers and investors triage credits in their portfolios that might merit closer examination.

 

The CoreScore is designed to be a strategic asset for informed decisions. How should clients best utilize this tool when constructing or adjusting their credit portfolios, especially in anticipation of market shifts or economic downturns?

 

The CoreScore can help investors contextualize our relative value recommendation.  Whereas a single-A credit could be deemed an Underperform if it trades 20 bp tight to its peers, we often hear from clients who are trying to understand the degree to which we anticipate fundamental deterioration in the credit versus a compression in trading levels between two credits.

Another use case is the example of a cuspy name that is trading wide to its peers; clients are often asking how much of an outlier is its exposure to specific fundamental factors, be it Event Risk or a weak balance sheet.  The CoreScore can help investors assess the degree to which trading levels versus the fundamental factors are driving our recommendation.

If investors are anticipating a financial cycle turn, and expect capital market conditions to tighten, they may be more concerned about liquidity.  This is one of the subfactors in CoreScore, and investors can look at the outliers on liquidity, strong or weak, in each of the four investment categories.  Similarly, investors may have concerns on profitability for Consumer names, particularly in a volatile inflationary/rates periods.  Using the Companies tab on our website, clients can focus in on Consumer names with weak Profitability for additional focus in their portfolios.

 

By leveraging CoreScores, clients can make more informed decisions, align their portfolios with their risk tolerance, and navigate market shifts with confidence. Explore the potential of CoreScores on our platform and witness firsthand how it complements and enhances their investment strategies, especially in times of economic uncertainty.

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