Commentaries

Fireworks

13 January 2020

Gilles Pradère

RAM (Lux) Tactical Funds - Global Bond Total Return fund - Gilles Pradère Senior Fund Manager, Fixed Income

Risk assets outperformed in December, with credit spreads tighter and equities up across the board. This sharp move benefitted mostly EM assets (both equities and credit), especially after China and U.S. announced a Phase 1 deal on their trade war, lowering the recession risk, while central banks are now on hold, but still with an easing bias.

This performance looked like the fireworks that ended an extraordinary year for most financial assets’ performance and is unlikely to be repeated. That leaves valuations relatively stretched, particularly on corporate spreads which are back at their lows since 2009, while some juice is left on EM debt. With an easing bias on both monetary and fiscal policies, support remains but the economy remains vulnerable and corporate profits have slowed. There are also potential political risks: the issue of the democratic primary can become a concern for U.S. assets, while the UK and EU have a difficult settlement to reach in 2020, to name a few.

We have booked some profits on spreads which are less compelling across the portfolio, reducing slightly our portfolio duration in both quality and credit. We took advantage of recent Italy underperformance to build our exposure on the 4-year area. Overall, our EM and corporate credit exposure outperformed, and our traditional portfolio delivered +0.29% (gross of fees).

The U.S. curve, U.S. asset swaps and spread of Austria vs Germany contributed again positively this month. Spain outperformed France and we booked some profits as the spread returned to the tights. Our non-traditional portfolio delivered +0.30% (gross of fees).

Our SEK, NOK, PLN and GBP exposures against Euro contributed positively, as well as our long EM currencies against USD which benefitted from the trade truce. Our Fx portfolio delivered +0.30% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +0.78% net of fees. Duration stands at 3.44 years and the average credit quality was AA-.

 *Sources : RAM Active Investments