Commentaries
14 January 2021
December 2020 - Higher debt levels – a necessary evil - Tactical Fund Manager's Comments
The speed at which the global fixed income market reacted during the month of March and the subsequent recovery is undeniably no different to what has been experienced by other asset classes. Massive monetary and fiscal interventions all over the world to salvage the economy from an unprecedented economic contraction resulted in much higher central bank balance sheets and public/private sector debt. Simply put, we view the current situation as having Chinese origins and remedied with Japanese medicines, i.e. a combination of ZIRP and QE. For these policies to be effective, several conditions are necessary:
the support to the economy must be maintained well beyond the beginning of the recovery
higher fiscal and monetary policy integration
low debt servicing
more targeted investments from fiscal authorities (innovation, inequality reduction, infrastructure investments, etc.)
The low yield environment brings with it legitimate questions from investors as to the return potential of quality-biased fixed income investments. Looking back at what has been happening since the Global Financial Crisis and comparing the yield of Investment Grade bonds at the start of each year with the returns generated during that same year, it clearly appears that the yield level has not been a good predictor of performance. As investors, we believe we are better off remaining invested in fixed income markets, rather than staying on the sidelines, despite pronounced volatility phases.
Going into 2021, we remain constructive on the global fixed income market. However, there are pockets of the market where positive news are fairly priced in. In that respect, we continue to apply our core principles in managing investments, i.e. flexibility, diversification, quality and liquidity focused. Since the summer, we have been taking profit on some of our High Grade exposure and partly shifting the proceeds from richly priced bonds to more attractive areas such as Subordinated Financials and High Yield. We continue to keep our exposure to the Emerging Markets Sovereign & Quasi-Sovereign segment, where the combination of positive economic perspective with an attractive carry makes it attractive.
The below table illustrates the current positioning of the RAM Global Bond Total Return Fund. The risk level, ranging from 0 to 5, provides with an indication of the risk by strategy, with 5 being the maximum level of risk that can be taken in line with the investment philosophy of the fund.
Source: RAM AI, as of 31.12.2020
Direct access per fund to our latest Fund Manager's Comments:
Legal Disclaimer
This document has been drawn up for information purposes only. It is neither an offer nor an invitation to buy or sell the investment products mentioned herein and may not be interpreted as an investment advisory service. It is not intended to be distributed, published or used in a jurisdiction where such distribution, publication or use is prohibited, and is not intended for any person or entity to whom or to which it would be illegal to address such a document. In particular, the products mentioned herein are not offered for sale in the United States or its territories and possessions, nor to any US person (citizens or residents of the United States of America). The opinions expressed herein do not take into account each customer’s individual situation, objectives or needs. Customers should form their own opinion about any security or financial instrument mentioned in this document. Prior to any transaction, customers should check whether it is suited to their personal situation and analyse the specific risks incurred, especially financial, legal and tax risks, and consult professional advisers if necessary. The information and analyses contained in this document are based on sources deemed to be reliable. However, RAM AI Group cannot guarantee that said information and analyses are up-to-date, accurate or exhaustive, and accepts no liability for any loss or damage that may result from their use. All information and assessments are subject to change without notice. Investors are advised to base their decision whether or not to invest in fund units on the most recent reports and prospectuses. These contain further information on the products concerned. The value of units and income thereon may rise or fall and is in no way guaranteed. The price of the financial products mentioned in this document may fluctuate and drop both suddenly and sharply, and it is even possible that all money invested may be lost. If requested, RAM AI Group will provide customers with more detailed information on the risks attached to specific investments. Exchange rate variations may also cause the value of an investment to rise or fall. Whether real or simulated, past performance is not necessarily a reliable guide to future performance. The prospectus, key investor information document, articles of association and financial reports are available free of charge from the SICAVs’ and management company’s head offices, its representative and distributor in Switzerland, RAM Active Investments S.A., Geneva, and the funds’ representative in the country in which the funds are registered. This marketing document has not been approved by any financial Authority, it is confidential and its total or partial reproduction and distribution are prohibited. Issued in Switzerland by RAM Active Investments S.A. which is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA). Issued in the European Union and the EEA by the authorised and regulated Management Company, Mediobanca Management Company SA, 2 Boulevard de la Foire 1528 Luxembourg, Grand Duchy of Luxembourg. The source of the above-mentioned information (except if stated otherwise) is RAM Active Investments SA and the date of reference is the date of this document, end of the previous month.