Commentaries

Broad-based strength continues, as risk appetite stays the course

12 August 2020

Ani Deshmukh

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

The month of July continued strength in both equity and risk markets globally, which carried forward the risk tone from June despite increasing headwinds from a second/third wave of COVID-19 cases as well as the ratcheting up of geopolitical issues between China and the G7 countries. While the spat between US and China escalated and led to the closure of one consular offices by each country, and the HK Security Law resulted in increasing fractious dealings with the rest of the G7, markets largely ignored these concerns as liquidity remained loose and the hunt for yield drove flows into credit. Progress in the EU meetings towards aid and a quasi-mutualization of debt was also positive and it led to a relative weakening of the USD versus both the EUR and EM currencies, which was another support factor for Asia. While supply remained strong (~$35bn in Asia for the month), this was well absorbed. The impact of US liquidity was also evident in deal allocations for EM – US share of new issues went up to almost 20%, from 14-16% in the last three years. Overall, Investment Grade spreads in Asia compressed by 25 bps and High Yield spreads were about 70 bps tighter in July.

 

 

Source: BondRadar, J.P. Morgan

 Fund performance and positioning

The RAM (Lux) Tactical Funds II – Asia Bond Total Return Fund (Class PI USD) fund was up 1.95% in July, with performance aided by both IG spread tightening as well as our increased allocation to High Yield. As at July-end, High Yield accounted for 22% of the fund’s exposure versus 16% in June-end. The fund has maintained its duration at about 4 years, and we continue to actively manage it as UST levels correct lower. While fundamentals remain challenged for many corporate issuers, the technical support for credit remains an overwhelming force and segment/ market leaders are likely to keep benefiting from this demarcation over the coming weeks. We would look at the upcoming High Yield results season to get more insights into 2H outlook, while maintaining a diversified stance with a tactical approach to adding risk on any correction.

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.

Source: Nexus Investment Advisors Limited.