Commentaries

Light at the end of the tunnel

14 December 2020

Gilles Pradère

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

With a risk-on tone, risk assets outperformed in November, and safe ones recouped some of their recent underperformance. With spreads generally tighter, High Yield markets outperformed, while Emerging spreads benefitted from a softer dollar.

Uncertainties have significantly diminished during the month. A Biden administration is likely to ease geopolitical tensions. Unless Democrats win the two seats in Georgia runoff election that will take place in January, Mr Biden will have to negotiate with a Republican senate. This situation limits the new elected president’s ability to increase taxes. An agreement is also needed on a fiscal package, reducing the likelihood of a very large one that could have an adverse impact on rates.
But the arrival in the coming months of several promising Covid-19 vaccines was the real game changer, and there is now some light at the end of the tunnel. In the meantime, supportive fiscal and monetary policies should remain as the stigma of this unprecedented crisis is still very large.

In such an environment, our portfolio benefitted. High-yield and subordinated financial debt that we added in September and October contributed positively. Our USD High-grade exposure performed, as did our Emerging debt exposure. As spreads in some areas have become quite tight, we have taken profit on some exposures offering less potential at this stage. Our duration has slightly decreased to 4.5 years. Our traditional portfolio delivered +1.28% (gross of fees).

With Euro rates back at low level and a flat curve, we entered a steepener, playing the underperformance of the 30-year against 10-year, a strategy that offers a decent entry point, and positive carry and roll-down. We remain long Austria 100 years against Germany 30 year which performed positively. Our non-traditional portfolio delivered +0.03% (gross of fees).

Our Fx strategies benefitted from the soft USD environment. We booked some profits on the NOK, reducing the exposure to 1.1%. We remain long SEK, NOK, JPY, CAD against USD and EUR. Our FX portfolio delivered +0.20% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +1.42% net of fees. The duration stood at 4.5 years and the average credit quality was A. 

Source: RAM Active Investments.