Commentaries

Challenging Fixed Income Quarter Ends

13 April 2021

Ashwin Aiyappan, Nevin Nie

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

Markets update

FThe month began with a rally in rates catalysed by the RBAs action in the ACGB market. That quickly turned with a fierce move into mid-month in US treasuries. Credit spreads struggled in this phase, especially in EM. As US interest rates found a new range, spreads stabilised and recovered but performance in fixed income was poor in the quarter given the significant move in interest rates. It’s also worth noting that the Gamestop episode has now been followed by the developments around Greensill and Archegos; the themes of micro-fragility in otherwise buoyant markets continues. The S&P finished the month around record highs and data continued its strong pattern through the month. Within Asia credit, the market gyrations were also noticeable with interest rate moves creating dispersion in various Asian credit market subsectors. The outperformer was High Yield, where shorter duration combined with yield and a positive regional economic outlook, led to an outperformance. In fact, though, there were individual credits under pressure in China High Yield (Yuzhou) and non-China High Yield, the market’s development was highlighted by limited spill over from individual credits to the broader asset class. Again, mainly due to rates, the IG component of the JACI was the underperformer.

Asia Investment Grade spreads tightened by 5 bps this month, while High Yield spread tightened by 1 bps. The spread of Asia High Yield over Investment Grade has decompressed by 4 bps to close at around 482 bps. At quarter-end, Asia High Yield return sat at 0.48% whilst Investment Grade was below at -1.67%. The benchmark JACIs YTD return was -1.17%.

Outlook and portfolio performance

Value continues to remain in Asia credit both in Investment Grade and High Yield as the macro backdrop in the region is strong. We are more cautious though due to the rates volatility and the pattern of micro liquidity events.

The RAM (Lux) Tactical Funds II - Asia Bond Total Return Fund (Class PI USD) fund was down -0.56% in the month of March, with losses mainly driven by interest rates. The fund remains well diversified. We remain invested with a net duration of 3.78 years and 8.97% cash level, and we would look to rotate out of cash and tightly traded Investment Grade bonds into new issues or strong BB credits with rating upside and at some time add duration.

Source: Nexus Investment Advisors Limited.