9 April 2020

Ani Deshmukh

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

Market outlook
The global spread of the coronavirus as well as the unexpected collapse of OPEC+ in March resulted in a very material reset for risk assets. Asian credit markets saw a similar repricing in March, with Investment Grade credit spreads widening by about 150bps, and about 435bps for High Yield corporates. To put valuations in perspective, Asian spreads have jumped to the widest levels seen since the GFC, in a very short period. These moves were exacerbated by ETF and Private Bank account selling, which coupled with lower dealer balance sheets magnifying the repricing. Spreads stabilized after Central Bank interventions globally helped put a floor on valuations, with the Fed’s corporate bond purchase program and ECB’s QE helping the IG space. US 10y treasury yields fell 40bps, while the 2-10s curve steepened from 20bps to 40bps as markets factored in higher borrowing costs for the Fed. In Asia, liquidity was at a premium but Investment Grade bonds in general have performed better than DM IG, supported by a persistent domestic bid for bonds especially from China.

 RAM AI - Asia Credit Spreads widest since the '08 GFC

Source: Bloomberg, RAM AI

Fund performance and positioning
The Fund’s conservative positioning since end-FY19 has helped it limit the market beta impact to the portfolio. As at end-March, the Fund has 13% exposure in High Yield bonds, its lowest allocation to the asset class in the recent years, while increasing cash to about 9%. The portfolio duration has been lowered to 3.7 years considering the significant rally in risk-free rates, and we are looking to maintain the Fund’s conservative positioning in the near term while we get greater clarity on the extent of the Virus’ economic impact. The portfolio remains liquid and has minimal refinancing/credit stress candidates within its constituents.

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