Commentaries

Delivery Time

9 August 2019

Gilles Pradère

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

July saw a moderate outperformance of risk assets: equities in the U.S. did well, while Europe and EM consolidated. Credit spreads tightened slightly while U.S. and German yields stabilized at, or close to, their recent lows, allowing bonds to deliver robust performances.

This month, investors expected some clarification surrounding what the next moves by the ECB and the Fed could be. So far, central banks have supported markets by words, but now has come delivery time.

While some recent economic figures have been reassuring, they are mostly concentrated in the U.S. and in the domestic sector. Conversely, the manufacturing sector continues to point downwards, while political risks have resurfaced recently. Trade frictions remain important between the U.S., China, and potentially Europe. The hard Brexit probability has also increased with the new UK Prime Minister.

Therefore, even if there can be some disappointments, central banks remain supportive for now, at least because more time is needed to assess how deep this slowdown is.

Our traditional portfolio benefitted mostly from the spread tightening. Our USD exposure was flat, while the EUR one performed well. We closed a short protection on EUR CDS as spreads became tight. We also reduced our Turkish exposure by booking some profits after a significant rally. Overall, we maintained a balanced portfolio between quality and carry. Our traditional portfolio delivered +0.75% (gross of fees).

The U.S. curve flattened in this month of consolidation, which detracted some performance, as well as our U.S. asset swaps. The Austrian 100y outperformed the 30y Germany, contributing positively. Our non-traditional portfolio delivered -0.13% (gross of fees).

We used some pullbacks to complete our short USD exposure against a diversified basket of EM high yielders, as we expect the USD to remain capped by more accommodative central banks. Our FX portfolio delivered +0.09% (gross of fees).

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +0.67% net of fees.  Duration stands at 4.16 years and the average credit quality was A+.

 *Sources : RAM Active Investments