Commentaries

Consolidation

8 October 2019

Gilles Pradère

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

A busy month for central banks as both the ECB and Fed announced easing, with September witnessing some consolidative moves across assets. After a strong performance during the summer, high quality assets consolidated as rates moved moderately higher. Overall, risky assets benefitted from various monetary policy easing, and recouped some of the losses suffered in August.

With central banks providing some accommodation, fiscal policy is expected to potentially provide the next leg of support. However, despite running a large fiscal surplus the German government poured cold water on these hopes by planning only a small fiscal impulse in next year’s budget draft and to fund the climate plan by new taxes. Therefore, how the trade war between China and the U.S. evolves is important as it continues to be a significant drag on global trade and business spending. Brexit continues to be a concern, but if a no-deal is still possible later this year, it is unlikely at the end of October. Consequently, the slowing growth scenario with supportive central banks that we have played in the last few months remains prevalent, although we booked profits on some exposures that have done very well and offer less attractive risk reward.

Our Euro exposure, more sensitive to spreads and less exposed to rates, delivered a positive performance (+0.14% gross of fees), as our peripheral and EM exposures performed well. We have closed our Italian exposures, reducing our duration in the process, and switched into a strategy of Spain against Germany, as Spain offers a potential of outperformance and less risks. Our USD exposure, more focused on quality, detracted some performance (-0.20% gross of fees) as rates moved slightly higher. Our traditional portfolio delivered -0.06% (gross of fees)

Our non-traditional exposure delivered a positive contribution as the U.S. curve steepened and Treasuries outperformed swaps, after last month’s underperformance. Spreads of Spain and Austria against Germany also contributed positively. Our non-traditional portfolio delivered +0.10% (gross of fees)

With Euro underperforming this month, our Fx portfolio benefitted from our long SEK and modest GBP exposures. Our EM exposure diversified and focussed on high yielders, outperformed USD, delivering a positive contribution too. Our Fx portfolio delivered +0.16% (gross of fees)

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 4.05 years and the average credit quality was A+.

 *Sources : RAM Active Investments