Pentagon Funds
The Pentagon Funds are corporate bond investment funds managed by ICM Investment Management ("ICMIM") and advised by ICM Capital Research ("ICMCR"). The Fixed Income Team ("We") consists of ICMCR employees based in Dublin, Ireland, with oversight and support from ICMIM, based in Epsom, United Kingdom. The Pentagon Funds include two funds that have stellar track records and world-class returns, both in relative and absolute terms.​​
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The objective of the Pentagon Funds is to provide investors with attractive risk-adjusted returns through a global portfolio of corporate bonds while consciously looking to minimise risk. We believe the best approach to successfully achieving this objective is through a three-pronged investment approach which adopts a short-duration (short maturity) bias, with a focus on both fundamental bottom-up credit selection and downside protection.
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For more than a decade, we have been creating significant alpha, or excess returns, for our investors. We seek to generate returns from factors we can control and reduce our reliance on factors we cannot control. By having a relatively short-duration bias, a greater proportional exposure to shorter maturity bonds, we keep our sensitivity to the market beta or market return (which we cannot control) relatively low and proportionally increase our exposure to the specific issuer risk or alpha return (which we can control through selection). When we invest, we also look for a ‘margin of safety’ to give ourselves the best chance of outperformance while providing downside protection and minimising losses.
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Following this approach, we increase the probability of hitting our annual targeted return on average and reduce the probability of a loss.
The Pentagon investment strategy is based on the three foundation pillars of a short-duration bias, bottom-up fundamental research and downside protection
Short Duration Bias
By having a greater proportional exposure to shorter maturity bonds, we reduce our sensitivity to the overall market return, whilst simultaneously increasing our exposure to the specific issuer returns or alpha offered by the target corporate bond issuer. ​
Fundamental Bottom-Up Analysis
We mitigate specific issuer risks by conducting detailed credit analysis on each potential investment. Our analysis includes disciplined quantitative and qualitative analysis with a particular focus on identifying potential red flags.
Margin of Safety
We look for a margin of safety when investing, giving the fund the best chance of outperformance while providing downside protection and minimising potential losses. We define the margin of safety as net cash and other tangible assets that form part of the investee company’s resources and have the potential to increase in value through future generated cash flows.