Not even scared

14 July 2020

Clement Perrette

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

Risk assets performed well again in June, supported by the very low interest rates environment. Investment Grade and Equities closed the month in positive territory, while high yield trailed its traditional beta.

Not even scared, financial assets delivered this performance despite an increase of Covid-19 cases worldwide, including in the US. It’s true that in most countries the increase of cases is not matched by deaths increase. But this happens not only in Southern hemisphere countries entering the winter season, but also in countries with higher temperature or entering the summer season. It confirms that the virus is here to stay and this highlights the potential risk for the autumn. Even if complete lockdowns are less likely, the impact on growth will be negative.

Perfectly aware, Central Banks remain very supportive. Until now, risk premia have remained elevated for EM sovereign and High Yield, while not far from average on Investment grade, but the recent rally has reduced it.

We used the yield increase following a strong job report to buy some US treasuries. In the first half of the month, the new issue pipeline enabled us to selectively add to our exposure. As spreads tightened, we started to book profits on some High Grade and some EM Sovereigns we feel less comfortable with. We have also increased the liquidity of the portfolio by replacing some exposures with a combination of liquid and well rated exposures with index CDS on High Grade. Later in the month, we took advantage of the yield decline to book profit on some treasuries as we view rates in a range for now. Our High-Grade and Sovereign EM exposures performed well, while our moderate High Yield exposure contributed positively. Our traditional portfolio delivered +1.34% (gross of fees).

Our long in Austria against Germany and Spain against France were unchanged at the end of the month. Our non-traditional portfolio delivered +0.03% (gross of fees).

Our long SEK and NOK against EUR performed positively this month. We used the pullback in EUR to increase our short USD, which also helped. Our FX portfolio delivered +0.08% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered 1.35% net of fees. Duration stood at 4.9 years and the average credit quality was A.

*Source: RAM Active Investments