Liquidity improvement

12 August 2020

Clement Perrette

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

Risk assets continued to perform, even if European equities experienced some consolidation as the Euro strengthened. Fixed Income products pursued their recent positive trend, supported by the combination of lower yields on quality assets such as government bonds and tighter spreads on corporates.

Despite an increase in contaminations, and deaths, the rally has continued unabated. With attractive valuations after March selloff, the liquidity provided by central banks combined with the rebound of the economy and a defensive positioning by investors explain the move upward, and the resilience of the last few weeks.

Value remains and therefore we keep being invested, but the market attractiveness is nonetheless reducing. With spreads back to an average level, especially in the developed High- Grade segment, we continue to focus on improving the portfolio liquidity, especially when cash bonds start to be back to beginning of the year levels.

Our High Grade corporate and Sovereign EM exposure performed in both USD and Euro. We continued to book profit on single name corporates that we consider offering less potential of spread compression. We invested the proceeds on various curves we view as attractive, especially in Canadian rates where agencies are offering a liquid alternative within one of the steepest curves. Overall, we maintained our credit compression strategy by selling protection on Index CDS, as some value remain. Our traditional portfolio delivered +1.31% (gross of fees).

Our long in Austria against Germany and Spain against France were mostly unchanged at the end of the month. Our non-traditional portfolio delivered +0.01% (gross of fees).

The USD declined in the second half of the month, particularly against European currencies. Our long SEK and NOK, now essentially against USD, benefitted. The broad dollar decline benefitted our other positions as well. Our FX portfolio delivered +0.23% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +1.46% net of fees. Duration stood at 4.66 years and the average credit quality was A.

Source: RAM Active Investments.