Commentaries

Uncertainties, slowing growth but easier money

2 July 2019

Gilles Pradère

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

As opposed to last month, risk assets rallied, supported by central banks’ easing stance, which also allowed rates to decline, and financial assets delivered a stellar performance in bonds and equities.

Central banks confirmed their easing bias in this uncertain period. Inflation is low compared to the previous cycle, while growth is slowing. The trade truce reached at the G20, while a positive, is not an agreement. Moreover, the slowdown is likely related not only to trade uncertainties but also to more structural factors, such as elevated debt levels in China. Therefore, the environment is likely to remain one of slow growth, with easier monetary policy as a support.  

Our traditional portfolio, balanced between quality and spread products, benefitted. We added some UST to our USD portfolio which contributed +0.54% (gross of fees). We added some 5y BTP and reduced our subordinated exposure in our EUR exposure (+0.69%, gross of fees). Our traditional portfolio delivered +1.34% (gross of fees).

With easier financial conditions ahead, we added on the U.S. steepener, which contributed positively this month. We entered a long 30y Spain against 10y as the Spanish long end is attractive in Europe, as well as some 100y Austria against 30y Germany on supply opportunity. U.S. Asset swaps did little, staying cheap. Our non-traditional portfolio delivered +0.04% (gross of fees).

We increased this month our short USD against attractive high yielders in Emerging particularly. We increased RUB to 1% of assets, BRL to 0.7% and MXN to 0.5%, as well as a diversified basket to 1%. In EMEA, we increase PLN to 0.8%, and keep SEK at 2.5% against EUR. Overall, those exposures performed well, both against EUR and U.S., and our FX portfolio delivered +0.19% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +1.51% net of fees.  Duration stands at 4.29 years and the average credit quality was AA-.

 *Sources : RAM Active Investments