Hopes of recovery

11 June 2020

Clement Perrette

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

As in April, risk assets performed well in May, particularly equities and high yield, while global rates stayed low.

Central banks and Governments have continued to expand their support to the economy. Germany and France proposed to their European partners a first step towards some form of debt mutualization. Even if this project is designed to be limited and temporary, it would enhance Eurozone Governments’ ability to manage the current challenging period. As Asia and Europe reopens cautiously, oil prices recovered, improving the sentiment.
Moreover, the lower-than-expected number of new Covid-19 cases after some countries exited their lockdown has also raised the probability that the economy could operate at a higher rate than initially feared. Hopes of recovery have logically increased.
Obviously, the ability to control the disease will be key to figuring out the growth strength, but until now the combination of massive support with attractive premiums provide justification to remain invested, particularly in High Grade sectors.

We used the new issue pipeline to add to our US High Grade and Agencies exposures as spreads remained compelling. We rotated some positions in emerging debt to capture attractive new issues in EUR. The asset class offers very attractive spreads and yields, including in those challenging periods. Both our High Grade and EM exposures benefitted well in this environment, particularly in USD as yields stayed relatively stable (+1.24% gross of fees). Our EUR exposure performed also, and we marginally reduced some peripheral exposures (+0.36% gross of fees). Our traditional portfolio delivered +1.72% (gross of fees).

Both the long Austria against Germany and Spain against France strategies performed. Our non-traditional portfolio delivered +0.09% (gross of fees).

Our long SEK and NOK against Euro confirmed their rebound this month, particularly the NOK. With a positive sentiment towards risk assets, our remaining EM exposure performed too. Our Fx portfolio delivered +0.16% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered 1.88% net of fees. Duration stood at 4.85 years and the average credit quality was A-.

*Source: RAM Active Investments