On alert

11 April 2019

Gilles Pradère

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

In March, most financial assets delivered positive performance, ending an historically strong quarter. Bonds benefitted mostly from lower rates, as credit spreads stayed relatively stable. Equities also benefitted during the month, despite uneven growth numbers from leading indicators.

To a large extent, central bank’s decisions explain this rally. Due to a deeper slowdown, the ECB announced that they will be on hold for all 2019. With inflation below target, and elevated global risks, the U.S. Fed announced that they will be patient as the dust settles. The message is that central banks are on alert. This does not mean recession is no longer a risk, but such an event will be fought quickly by more active monetary policy. The consequence is that over the medium term, we may have a situation of subdued rates with investors searching for yields, but cautiously as more information is needed on where growth is headed to. So, it may have some risk-on flavour, but is not as straightforward as we are late in the cycle, and we remain focused on keeping our portfolio robust and liquid.

We have taken advantage of the subordinated debt rally since the beginning of the year to book profits as these structures might be more vulnerable in a downturn. We also closed a large part of EUR Corporates exposure after a strong rally. We have reduced our OAT short as ECB policy makes it costly for the time being. Instead we have increased our moderate peripheral exposure on Greece and Italy, as well as some lagging sovereign EM debt. Our EUR portfolio delivered +0.35% gross of fees. In USD, we increased a diversified EM Sovereign exposure which might benefit from a dovish Fed, while keeping our Treasuries exposure as a good quality investment. Our USD portfolio delivered +0.56% gross of fees. Our traditional portfolio delivered +1% gross of fees.

We have kept our U.S. curve steepener unchanged (-0.02% gross of fees). We have taken advantage of a strong receiving flows in swaps that have compressed U.S. asset swaps to add to our position as the entry point has become attractive. Our non-traditional portfolio delivered –0.02% gross of fees.

Over the course of the month, we added to our Euros short, particularly against the CAD. We later in the month reduced our short EURCAD as the EUR sold of following weak economic figures. After a strong rally, we also booked some profits on our RUB exposure, as some headlines and uncertainties may generate some volatility. Our short EURSEK performed this month, and we kept it unchanged. Our FX exposure delivered +0.08% gross of fees

 At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +0.99% net of fees. Duration stands at 4.28 years and the average credit quality was A+.

 *Sources : RAM Active Investments