Commentaries

Low for (very) long

11 September 2020

Clement Perrette

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

Equities benefitted again this month from better economic numbers as well as a favorable rates environment. Government bonds declined slightly, after a seasonal up move during the summer. Credit was broadly stable, with a bias to High Yield outperformance due to the higher correlation with equities.

At the end of the month, The Fed held its Jackson Hole symposium, during which Chairman Powell announced that, while keeping its dual mandate on inflation and employment, the latter will be privileged due to very low inflation levels experienced during the last decade.

The timing of the announcement was a surprise but not the announcement itself. It is important as it reinforces a message of low yields for a very long time, which is a structural factor, especially for Fixed Income investors, for whom cash is likely to remain unwelcome. In such an environment, being invested remains key, but remaining fully aware of the risk/reward is more than ever relevant.

While rates on safe assets backed up at the end of the month, their contribution was slightly negative over the course of the month, but as we reduced the duration on such assets, the downside was limited. The overall compression of credit spreads though allows our traditional portfolio to have a positive contribution in both Developed and EM exposures. In an environment of relatively reduced spreads, we continued to improve the liquidity of the portfolio. Our traditional portfolio delivered +0.13% (gross of fees)

Our long in Austria outperformed against Germany, allowing our non-traditional portfolio to delivered +0.02% (gross of fees).

The USD decline continued, mostly against Developed currencies. Our long SEK and NOK, as well as a moderate long CAD, JPY and GBP, also proved rewarding. Our FX portfolio delivered +0.10% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +0.15% net of fees. The duration stood at 4.44 years and the average credit quality was A.

Source: RAM Active Investments.