Commentaries

Brexit uncertainties

14 December 2018

Gilles Pradère

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

 

Financial assets delivered various performances during November. EM equities and local debt have bounced from the lows, after several months of underperformance. European equities continued to suffer from political risks and disappointing economic figures, while US equities resisted. On the fixed income side, the picture is more straightforward with quality assets performing, while credit underperformed in both HG & HY.

With hopes of a less aggressive stance on the trade war front between China and the U.S., assets from emerging countries finally benefitted after being unloved for most of 2018. Conversely, in credit space, little risk premium combined with various and sometimes new risks explain the underperformance over the month.

Tense Brexit negotiations have raised uncertainties, in a year in which investors had to manage a series of political risks. Both governments agreed on a final text, but it did not provide relief as the UK parliament is unsure whether to support it. Consequently, after several difficult quarters, investors are reducing risks overall. We remain focused on liquidity and quality of our investments but are also of the view that the economy is still operating normally, as some of those political risks can recede. But we also agree that lasting uncertainties combined with pockets of weakness in some economies are negative for global growth.

Our traditional portfolio delivered –0.13% (gross of fees). As last month, the USD portfolio, biased towards quality had a positive contribution, with little detraction from our credit exposure, concentrated on short maturities. The Euro portfolio, due to low yields and high duration risks for quality assets in this currency, is biased towards more attractive yields and suffered from the general widening. We keep this exposure for the time being as pricings are becoming quite attractive, and it is limited in size.

We continued to take advantage of the rally in BTP to close our exposure on the Italian sovereign debt. Our long Spain-short France spread detracted some performance this month. We keep it, combined with our short OAT-Bund spread as France remains quite rich. Our non-traditional portfolio delivered -0.01% (gross of fees)

Our Fx portfolio contributed +0.10%. Swedish Krona had a positive contribution, while CAD detracted in the risk off environment amid declining oil prices, despite being strong fundamentals and an attractive valuation.

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered -0.12%* net of fees. Duration stands at 3 years and the average credit quality was A.

*Sources : RAM Active Investments