A strong end to 2019

13 January 2020

Ani Deshmukh

RAM Active Investments RAM (Lux) Tactical Funds II - Asia Bond Total Return

Market Commentary

2019 ended on a strong note for risk markets, as political risks abated, and accommodative Central Bank policies remained on course. The long-awaited Phase 1 agreement between the U.S. and China removed further tariffs, and some expectations for the next round of talks have begun to be factored in. The Fed paused its cutting cycle and indicated an extended pause as it monitored the economy. This positive sentiment was mirrored both by credit and equity markets, and the U.S. 10-yr yields widening 10bps in the month. Asian credit spreads remained resilient, with IG spreads tightening 5-8bps and High Yield cash prices up by 25-50c on average. 

Portfolio Commentary

The feel-good factor continued into December, with Asian credit markets strong. However, while the markets remain buoyed by the pullback in macro risks, we are still to see meaningful improvement in earnings as well as Asian economic indicators. China PMIs remain soft, growth in India has slowed and export-reliant Korea and Taiwan have seen little improvement in export orders and manufacturing PMIs. China remains on an easing path, but other countries are now facing the challenge of managing fx depreciation versus aiding domestic liquidity through rates. New issuance is expected to remain heavy in Q1, as issuers look to lock in low funding costs. 2020 is therefore likely to see increased volatility, while the larger backdrop for credit remains positive (which we had previously highlighted), the need for vigilant credit selection remains increasingly important. Asia remains well positioned within the EM credit universe to withstand the expected volatility, owing to its size and strong domestic investor base.  

The RAM Asia Bond Total Return Fund was up 0.25% in December, brining annual returns of 10.33%. The Fund benefited from its diversified exposure across regions, with the remained invested in high-quality credits through 2019. The Fund is 95% invested with a net duration of 4.1 years. We expect U.S. rates to test the 2% mark and have therefore reduced our duration modestly as well as rationalised the portfolio to increase cash levels in anticipation of the heavy new issue pipeline in early 2020. The portfolio’s current yield is 4%.  

Nexus Investment Advisors Limited, subject to the supervision of the Securities and Futures Commission (SFC) in Hong Kong, has been appointed by the fund's management company as investment manager to RAM (Lux) Tactical Funds II - Asia Bond Total Return Fund.

*Sources : Nexus Investment Advisors Limited