Euro Credit Short Duration strategy - Update 17.04.2020
With the rally experienced over the past two weeks, the Euro Credit Short Duration strategy reported a positive net performance and is outperforming its index month to date.
PERFORMANCE UPDATE
- With the rally experienced over the past two weeks, the Euro Credit Short Duration strategy reported a net performance of 1.06% outperforming its index by 33 bps month to date (Source: AXA IM as at 17/04/2020, Institutional Share Class, net of 25bps management fees, EUR). High-beta assets performed particularly well including subordinated debt and cyclicals.
STRATEGY CHANGES
- The overall rating of our strategy remains at BBB+ with a duration of 1.98 years and a yield currently around 1.41%. (Source: AXA IM, as at 17/04/2020)
- We have made no major changes to the overall strategy over last week.
- As at 17/04/2020, we had a negative spread duration at around -0.21Y compared to the benchmark. Duration is slightly above the benchmark. (Source: AXA IM, as at 17/04/2020)
FLOWS & LIQUIDITY
- Up to end of February, the Euro credit Short Duration strategy net new money year to date has been negative as we have seen some clients taking profit post the strong returns in 2019, but more importantly, few clients were extending their duration given the low yield offered by the Euro SD strategy. Despite the recent sell-off, outflows have been fairly limited. We have seen some inflows in the strategy last week. The strategy is liquid and our current cash position is around 3.1% (same cash position as the week before + inflows in the strategy). Also, around 19% of the strategy has a duration below 1 year. (Source: AXA IM, as at 17/04/2020)
CURRENT THOUGHTS & OUTLOOK
- Credit markets have continued to see some positive signs last week with the BofA Merrill Lynch Euro Corporates 1-3 Yrs index tightening at 145bps from a level at 158bps on April 9th. (Source: Bloomberg as at 17/04/2019)
- While the outlook remains uncertain despite unprecedented fiscal and monetary support globally, the significant widening of spreads since late February has made us slightly more positive on risk assets and as such we have cut part of our hedging. We continue to participate selectively in the primary market that offers a good concession and better liquidity compared to the secondary market.
- Due to the continued flattening of the yield curve and sharp under-performance of the short-end of the credit curve vs. the long-end, the short-dated Euro corporate bond market offers a sweet spot with a yield at 1.2% for a 1.8Y duration. We believe it is a good entry point and offers a good value proposition. (Source: Bloomberg as at 17/04/2019)
disclaimer Please note that the performance data is not intended to represent actual past or simulated past performance of the Euro Credit Short Duration strategy. The data is based on a representative account that follows the Euro Credit Short Duration strategy. (1) Representative Account has been selected based on objective, non-performance based criteria, including, but not limited to the size and the overall duration of the management of the account, the type of investment strategies and the asset selection procedures in place. Therefore, the results portrayed relate only to such accounts and are not indicative of the future performance of such accounts or other accounts, strategies and/or services described herein. In addition, these results may be similar to the applicable GIPS composite results, but they are not identical and are not being presented as such. Account performance will vary based upon the inception date of the account, restrictions on the account, along with other factors, and may not equal the performance of the representative accounts presented herein. The performance results for representative accounts are net of all fees and do reflect the reinvestment of dividends or other earnings. No assurance can be given that the Euro Credit Short Duration Strategy will be successful. Investors can lose some or all of their capital invested. The Euro Credit Short Duration strategy is subject to risks including: Derivatives and leverage; Contingent Convertible Bonds; ESG. Not for Retail distribution: This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly. Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding. 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