Recession angst

9 January 2019

Gilles Pradère

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


December has been a month during which fears have driven performance. After being resilient, USD risky assets declined, with U.S. equities and high yield leading the down moves. “Safe havens” performed well, particularly U.S. treasuries. Fears centred upon doubts on the Fed’s ability to pursue its monetary policy tightening, as the economy might not be totally immune to the various risks, at a time when central banks are no longer globally increasing their balance sheets.

The trade war between the U.S. and China remain unsolved, likely impacting Europe where the growth picture has weakened over 2018, even if economic indicators do not yet point to a recession. In Europe, the Italian government found an agreement with the EU on its budget, but Italian yields remain high while the economy has slowed. The vote on the Brexit agreement remains a question mark. Hopefully, the U.S. economy is still operating at decent levels, but is also showing some signs of lower growth ahead, increasing the recession angst.

In this environment, we generally remain attentive in keeping a robust underlying portfolio. We have booked some profits on AA exposures, while adding risks in some high grade and emerging segments which offered some concession, as a tactical move. We have kept our U.S. treasuries exposure broadly unchanged as it offers liquidity and quality. The USD portfolio performed well, (+0,62% gross of fees), thanks to U.S. treasuries and Agencies and our diversified EM high grade exposures. Our Euro exposure delivered a moderate outperformance (+0,08%, gross of fees), mostly coming from high-grade. Our traditional portfolio delivered +0,75% (gross of fees).

We have taken advantage of the peripheral debt to sell our Spain exposure against France, also closing our long Germany against France. Our U.S. Curve steepener performed and we kept it. We have started to scale in U.S. asset swaps as seasonality is becoming favourable. Our non-traditional portfolio delivered +0,08% (gross of fees).

Our FX exposure remain unchanged. The SEK performed as the Riskbank finally delivered a hike (+0,06%, gross of fees). CAD underperformed, but the valuation is very attractive. Our FX portfolio delivered 0,12% (gross of fees)

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +0,83% net of fees. Duration stands at 2.92 years and the average credit quality was A.

 *Sources : RAM Active Investments