Consolidation and normalisation

11 June 2020

Ani Deshmukh

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

Market Commentary

Risk markets continued to normalise in May, continuing with the constructive tone seen in end-April. Investment Grade spreads were about 24bps tighter, while High Yield spreads compressed 50bps benefiting from no new issuance. US Treasury yields backed up about 6bps in the month, and largely remained rangebound as long-tenor UST issuance was well absorbed by the markets. A continued tapering in Covid19 cases across DM, coupled with more re-openings in key geographies led the improved market sentiment. Notable events which also supported markets included the oil-price recovery (helped by supply cuts by OPEC+) and the Franco-German EU COVID19 grants + loans proposal. While US-China relations deteriorated both due to trade issues as well as the HK security law amendment by Beijing, Asian credit remained largely resilient except for a brief spell of weakness in late May.

Portfolio Commentary

Central bank backstops in the US and now Europe have played a major role in market recovery, which has been stronger than expected. There remains a near-term disconnect between financial market valuations and the underlying corporate earnings outlook, which thus far has been explained as looking through the near-term earnings disruptions. While we largely agree with this viewpoint insofar as it pertains to Investment Grade bonds, the High Yield space in our view needs more careful monitoring. Corporate earnings are still difficult to predict, and funding as well as debt servicing stress for weaker issuers is very likely to increase in 2H, as the extent of business disruptions is clearer. While Central Banks have done a commendable job in shoring up confidence and dampening volatility, the fundamental outlook is likely to take a few quarters to improve. Given this dichotomy, we remain with our current fund profile; biased towards IG corporates and sovereigns, while staying relatively light in High Yield.

Fund Performance

The ABTRF fund was up +1.9% May, bringing YTD returns to -1.5%. We continue to have benchmark duration exposure at 4.3 years, and Investment grade accounts for 87% of the fund. We would look to gradually increase our High Yield exposure to mid-range levels of 15-20% in the coming weeks, via investing in creditworthy issuers which offer yield enhancement which retaining their defensive profile.


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