Commentaries

Commentaries

6 June 2024

Fixed Income Monthly Comments - May 2024

Global Bond Total Return

On a leash

Markets have been relatively choppy in May. During the first half, rates declined quickly following last April's rise, before reversing direction by moving up during the second half. This translated into a strong performance of risk assets during the yield decline, with equities reaching new highs and credit spreads returning to their tights, followed by modest consolidation during the second half.       

Having shifted their monetary policies to a restrictive mode in 2023, Central Banks continue to keep rate markets on a relatively tight leash. With significant rate cuts priced at the beginning of the year, robust growth and slower-than-expected disinflation induced forward yields to reprice higher since then.

The move is less abrupt than in 2023 though, as Central Banks clearly aim to avoid a recession and instead achieve a soft landing. Consequently, they keep the door open to rate cuts adjustments but only once they are more comfortable that inflation converges towards the 2% objective, which continues to keep market volatility relatively low in this process.

Overall, with a more conservative rates cuts pricing and a low volatility, we made some modest adjustments to our portfolio. As Swiss rates corrected higher at the end of the month, we booked some profits on swaps we used to hedge our CHF duration, which is still offering a high carry for foreign investors due to a flat yield curve, compared to more inverted ones elsewhere. We opportunistically participate in new issues where spreads remain relatively attractive for low beta names to improve the carry of the portfolio. We continue to keep the High Yield exposure unchanged at 10%. Our traditional portfolio delivered a return of +0.87% (gross of fees).*

The yield curve has been moderately supported by the slow increase in long-term forwards, consistent with higher nominal growth and neutral rate. The move still remains slow and should be further supported as rate cuts materialise as in previous mid-cycle cuts without a recession of 1995, 1998, and 2019. With volatility low this month, other long-short strategies have been stable. Our non-traditional portfolio delivered a return of +0.09% (gross of fees).*

As CHF underperformed significantly recently, we covered our shorts, looking to enter at better levels. With a positive tone on risk assets, cyclical currencies such as NOK and SEK benefitted this month. Our currency positions are long NOK, BRL, TRY, SEK, MXN, IDR against, SGD, EUR and USD. Our FX portfolio delivered a return of  +0.18% (gross of fees).*  

At the end of the month, the RAM (Lux) Tactical Funds – Global Bond Total Return Fund (Class B USD) delivered +1.16% (net of fees).** The duration stood at 4.33 years and the average credit quality was A+.***

For a complete overview of the fund performance, please click on the above-mentioned links in this document.

*The performance is gross of management fees and operational costs (0.60% management fee and 0.40% of operational costs, for a TER of approximately 1%).
** All fees and expenses, except subscription and redemption fees, are taken into account
*** Credit Rating: is a parameter used by banks and lending institutions to determine whether an applicant is deserving of the confidence necessary for the granting of a loan. This parameter makes it possible to measure the risk of consumer default and determine the economic conditions applicable to consumers. The highest rating is indicated by the letters: AAA. This is the indication of highest financial security. This is followed by: AA, A, BBB, BB, etc. The lowest credit rating corresponds to the letter C. This letter identifies a high risk of financial default and is a figure taken into great consideration by each lending institution.

 

 

RAM Asia Bond Total Return

Overview: India Election Surprises

• Softer US economic data drives US rates rally

The market remains uncertain about whether the US Federal Reserve will cut interest rates at all this year. Until there is a clearer consensus, US rate volatility is likely to persist. Weak US Treasury auctions last month pushed the 2-year Treasury yield close to 5.0% before softer economic data reversed the trend. The 2-year Treasury yield ended the month down 10 basis points (bps) at 4.87%, while the 10-year Treasury yield fell by 12 bps to 4.50%.

The higher US rates are also causing Central Banks in Asia to pause as they reassess their monetary policies. Last month, Indonesia, South Korea and the Philippines kept their policy rates unchanged. India's Central Bank is expected to hold steady this month as well.

The recent Indian election was a key focus for investors. Contrary to early exit polls, Prime Minister Narendra Modi's Bharatiya Janata Party (BJP)-led coalition fell short of a majority. This unexpected outcome led to immediate market reactions - India's NIFTY stock index fell by 5% on the day and onshore government bonds widened 8-9 bps. Indian corporate offshore dollar bonds also traded down 1-1.5 points. However, the medium-term outlook for India remains intact. In fact, S&P raised the outlook on India's BBB- sovereign rating to Positive last month, citing policy stability, economic reforms and sustained growth prospects.

In China, policymakers announced additional measures to support the struggling real estate sector, including a lending program for local governments to purchase existing housing inventory and reductions in mortgage down payments and minimum rates. But these steps were again seen as insufficient, keeping the market focus on the upcoming Third Plenum meeting in July.

Asian primary bond market activity continued to accelerate in May, reaching USD 12.8 billion compared to USD 10.1 billion in April and USD 9.6 billion a year ago. Year-to-date primary issuance has reached USD 61.2 billion, up 5% year-over-year. Chinese issuers were particularly active, accounting for over a third of total primary volume last month. Indian primary issuance also surpassed its full-year 2023 amount.

The J.P. Morgan Asia Credit Index (JACI) recorded a total return of 1.3% last month, which was largely attributed to the US rates movement.**** The blended spreads in Asia credit tightened by 11 basis points during the period and ended the month at 205 basis points. JACI returned 1.6% year-to-date.

Outlook and Portfolio Performance

• Focus on fundamentals 

Asia credit fundamentals and technicals continue to demonstrate strength. With favourable conditions in mind, we maintain a constructive stance and are actively seeking opportunities in both the primary and secondary markets to extend the portfolio duration and yield.

Last month, the RAM (Lux) Tactical Funds II - Asia Bond Total Return Fund (Class PI USD net of fees *****)  maintained a relatively stable yield of 6.3%, which was in line with the JACI. The duration of the portfolio was unchanged at 3.7 years. The portfolio returned 1.0% compared to 1.3% by the index. This was mainly attributed to the portfolio's duration underweight relative to the index. The portfolio held almost 2.0% cash holding at the end of the month.

For a complete overview of the fund performance, please click on the above-mentioned links in this document.

**** The fund is managed without reference to a specific benchmark. The Index used is not intended to be a restrictive definition of the investment universe. The composition of the fund's portfolio may differ significantly from that of the benchmark index.

***** All fees and expenses, except subscription and redemption fees, are taken into account

 

Important Information

The RAM (Lux) Tactical Funds – Global Bond Total Return is a Sub-Fund of RAM (Lux) Tactical Funds a Luxembourg SICAV with registered office: 14, Boulevard Royal L-2449 Luxembourg, approved by the CSSF and constituting a UCITS (Directive 2009/65/EC).
The RAM (Lux) Tactical Funds II – Asia Bond Total Return is a Sub-Fund of RAM (Lux) Tactical Funds II, a Luxembourg SICAV with registered office: 14, Boulevard Royal L-2449 Luxembourg, approved by the CSSF and constituting a UCITS (Directive 2009/65/EC). 

Please note that the share classes mentioned in this document may not be registered in your country of domicile. 

This marketing document is only provided for information purposes to professional clients, and it does not constitute an offer, investment advice or a solicitation to subscribe shares in any jurisdiction where such an offer or solicitation would not be authorised or it would be unlawful. In particular, the Funds are not offered for sale in the United States or its territories and possessions, nor to any US Person (citizens or residents of the United States of America).
This document is confidential and is intended only for the use of the person to whom it was delivered; it may not be reproduced or distributed.
There is no guarantee that the holdings shown will be held in the future. The investment described concerns the acquisition of shares in the Sub-Funds and not in a specific underlying asset.
Past performance is not a guide to current or future results. There is no guarantee to get back the full amount invested. The performance data do not take into account fees and expenses charged on subscription and redemption of shares nor any taxes that may be levied. As a subscription fee calculation example, if an investor invests EUR 1000 in a fund with a subscription fee of 5%, the investor will pay to his financial intermediary EUR 50.00 on the investment amount, resulting with a subscribed amount of EUR 950.00 in fund shares. In addition, potential account keeping costs (by investor’s custodian) may reduce the performance. Some shares in the Sub-Funds apply a performance fee. Leverage intensifies the risk of potential increased losses or returns.
RAM Active Investments may decide to terminate the marketing arrangement in place in any given country in accordance with Article 93a of Directive 2009/65/EC.
Changes in exchange rates may cause the NAV per share in the investor's base currency to fluctuate.
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Prior to any transaction, clients should check whether it is suited to their personal situation, and analyse the specific risks incurred, especially financial, legal and tax risks, and consult professional advisers if necessary.
Please refer to the Key Investor Information Document and prospectus with special attention to the risk warnings before investing. For further information on ESG, please refer to
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The prospectus, constitutive documents and financial reports are available in English and French while PRIIPs KID are available in the relevant local languages. These documents can be obtained, free of charge, from the SICAVs’ and Management Company’s head office and
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Issued in Switzerland by RAM Active Investments S.A. which is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA). Issued in the European Union and the EEA by the authorised and regulated Management Company, RAM Active Investments (Europe) S.A., 51 av. John F. Kennedy L-1855 Luxembourg, Grand Duchy of Luxembourg.
The source of the above-mentioned information (except if stated otherwise) is RAM Active Investments and the date of reference is the date of this document.

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This document has been drawn up for information purposes only. It is neither an offer nor an invitation to buy or sell the investment products mentioned herein and may not be interpreted as an investment advisory service. It is not intended to be distributed, published or used in a jurisdiction where such distribution, publication or use is prohibited, and is not intended for any person or entity to whom or to which it would be illegal to address such a document. In particular, the products mentioned herein are not offered for sale in the United States or its territories and possessions, nor to any US person (citizens or residents of the United States of America). The opinions expressed herein do not take into account each customer’s individual situation, objectives or needs. Customers should form their own opinion about any security or financial instrument mentioned in this document. Prior to any transaction, customers should check whether it is suited to their personal situation and analyse the specific risks incurred, especially financial, legal and tax risks, and consult professional advisers if necessary. The information and analyses contained in this document are based on sources deemed to be reliable. However, RAM AI Group cannot guarantee that said information and analyses are up-to-date, accurate or exhaustive, and accepts no liability for any loss or damage that may result from their use. All information and assessments are subject to change without notice. Investors are advised to base their decision whether or not to invest in fund units on the most recent reports and prospectuses. These contain further information on the products concerned. The value of units and income thereon may rise or fall and is in no way guaranteed. The price of the financial products mentioned in this document may fluctuate and drop both suddenly and sharply, and it is even possible that all money invested may be lost. If requested, RAM AI Group will provide customers with more detailed information on the risks attached to specific investments. Exchange rate variations may also cause the value of an investment to rise or fall. Whether real or simulated, past performance is not necessarily a reliable guide to future performance. The prospectus, key investor information document, articles of association and financial reports are available free of charge from the SICAVs’ and management company’s head offices, its representative and distributor in Switzerland, RAM Active Investments S.A., Geneva, and the funds’ representative in the country in which the funds are registered. This marketing document has not been approved by any financial Authority, it is confidential and its total or partial reproduction and distribution are prohibited. Issued in Switzerland by RAM Active Investments S.A. which is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA). Issued in the European Union and the EEA by the Management Company RAM Active Investments (Europe) S.A., 51 av. John F. Kennedy L-1855 Luxembourg, Grand Duchy of Luxembourg. The reference to RAM AI Group includes both entities, RAM Active Investments S.A. and RAM Active Investments (Europe) S.A.