Commentaries

August 2021 - Relevance of Multi Asset Credit (“MAC”) in a Post COVID-19 World - Fund Manager's Comments

14 September 2021

Hasan Aslan

Abundant liquidity and economic growth feeding the search for yield

Credit markets performed particularly well so far in 2021, driven by encouraging COVID-19 developments, supportive monetary policy and positive fund flows. With a medium-term view and particularly for investors seeking income, credit markets offer attractive opportunities at current levels.

Despite the uncertainty that still lies ahead, macroeconomic recovery will likely continue in 2022, albeit at a more moderate pace, and fiscal policies are unlikely to shift to austerity soon. As recently signalled by the Fed, continued support from monetary policies will be needed to restore jobs lost during the pandemic and prevent unwarranted financial conditions tightening, helping to maintain the cost of servicing debt at affordable levels. Defaults are back to historical lows and we do not expect a new spike soon.

  

High Yield Bonds Default Rate

          

 

 

  Source: JP Morgan, as of 31.08.2021

 

In this environment dominated by abundant liquidity, the search for yield will likely dominate fixed income asset allocation as the ultra-low rates environment continues, supporting further spread compression amid excess liquidity channelled into credit markets. The following chart shows the evolution of the total negative yielding debt globally.

 

Total Global Negative Yielding Debt

           

Source: Bloomberg, as of 31.08.2021

 

We believe that a flexible and active investment strategy is best placed to navigate through these market conditions. A MAC approach seeks to allocate tactically across credit asset classes to produce consistent and stable returns, with lower downside risks during periods of volatility. This flexibility allows RAM’s credit team to access higher-yielding exposures, while managing risk by diversifying across different credit segments. Each credit sector requires different skill sets and expertise and a MAC approach offers an efficient way for investors to access credit markets.

 

RAM AI onboarded a credit fund fully hedging out interest rate risk

RAM has recently added a new fund to its offering, PALLADIUM FCP – RAM Mediobanca Strata UCITS Credit Fund (“Strata”), launched in May 2019. Strata is a long-biased fund actively managed without reference to a benchmark, with exposure to predominantly developed market credit positions. It is actively managed and allocates dynamically to four credit asset classes (ABS, Corporates, Financials and Structured Credit) depending on the relative attractiveness of available opportunities. Strata importantly will hedge currency and interest rate exposure, offering investors pure credit spread returns with no influence from yields’ volatility.

Looking towards the future, we continue to see plenty of opportunities for alpha generation in credit markets, and we stand by our conviction that a dynamic, unconstrained approach to credit investing is the best way for investors to deal with the current environment and leaves us confident in our ability to deliver on our investment objective, despite low market yields.

 

Overview of PALLADIUM FCP – RAM Mediobanca Strata UCITS Credit Fund:

  • AUM: €303m
  • Well balanced and diverse sources of return
  • Low correlation of returns between credit asset classes
  • Not constrained by a benchmark
  • Interest rate and currency exposures are hedged
  • Dynamic investment process with both a top-down and bottom-up approach, improving the possibility of extracting value in changing market environments

Direct access per fund to our latest Fund Manager's Comments:  

Global Bond Total Return

Asia Bond Total Return

 

Important Information: PALLADIUM FCP – RAM Mediobanca Strata UCITS Credit Fund is a sub-fund of PALLADIUM FCP, a mutual fund (the “Fund”) established in Luxembourg in accordance with part I of the Law of 17 December 2010 relating to undertakings for collective investment. The Fund is managed by Mediobanca Management Company S.A. registered at 2, Boulevard de la Foire, L-1528 Luxembourg, Grand Duchy of Luxembourg and has been approved by the CSSF constituting a UCITS (Directive 2009/65/EC).

This confidential marketing document is not contractually binding and is only provided for information purposes. It does not constitute an offer, investment advice or a solicitation to subscribe for units in the fund.. Particular attention is paid to the contents of this document but no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof. Please refer to the Key Investor Information Document (in Italian and English) and prospectus (in English) with special attention to the risk warnings before making any investment decision. These documents together to the Management Regulations and financial reports (in English) are free of charge available at the Management Company’s registered office and its webpage https://www.mediobancamanagementcompany.com/en/palladium-fcp; the head offices of the Investment Manager and distributor in Switzerland RAM Active Investments SA Rue du Rhône 8 CH-1204 Geneva which is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority; the distributor and paying agent in Italy, ALLFUNDS BANK, S.A.U. Milan Branch - Via Bocchetto 6, 20123 Milano; the distributor RAM Active Investments (Europe) S.A. 51, avenue John F. Kennedy, L-1855 Luxembourg

This document is intended only for the use of the person to whom it was delivered (no reproduction). The Fund may not be offered, sold or delivered within the United States. THIS DOCUMENT IS EXCLUSIVELY INTENDED FOR PERSONS WHO ARE NOT U.S. PERSONS, AS SUCH TERM IS DEFINED IN REGULATION S OF THE U.S. SECURITIES ACT OF 1933, AS AMENDED AND WHO ARE NOT PHYSICALLY PRESENT IN THE U.S.

Past performance is not a guide to current or future results. The performance data do not take into account fees and expenses charged on issuance and redemption of the units nor any taxes that may be levied. Please seek professional advice from your financial/legal/tax advisor. Changes in exchange rates may cause the NAV per unit in the investor's base currency to fluctuate. There is no guarantee to get back the full amount invested.

Please note that the arrangement made for the marketing of the Fund can be terminated in accordance with Article 93a of Directive 2009/65/EC. We aim to summarize your rights on Mediobanca’s website, until then we can provide you more information via email. You can find information on Mediobanca complaints policy here. https://www.mediobancamanagementcompany.com/sites/duemme/files/app_6.8_28072021_mb_manco_complaints_handling.pdf Issued by Mediobanca Management Company S.A. and RAM Active Investments S.A.