April 2019 Commentary
Another month passed by and yet another positive month for risky assets across the spectrum. One would not have been at fault at presuming that, following the positive start to the year and the positive momentum seen in the first quarter. Sell offs took centre stage in April and to a certain extent, April did have its fair share of bouts of heightened volatility as well, as investors were swift to take profits, resulting in muted weakness. Overall, April was once again a positive month for credit and risky assets, with spreads on high yield bonds across both sides of the Atlantic tightening further.
It must be said that the euphoria we had seen in the first three months of the year seemingly dissipated in April, but was nonetheless strong enough to clock in yet another positive month. No major news updates. No particular surprising economic data releases, but merely an extension of the positive sentiment bolstered in January by the ECB and US Federal Reserve. With earnings season in full swing, investors had much to closely scrutinise, but there were no major surprises; corporates remain in good shape, earnings robust, and more importantly, balance sheets remain healthy.
US corporate balance sheets are more leveraged than their European counterparts as the QE trade lasted longer in the US than it did in the eurozone. With benchmark yields in Europe markedly lower, and with credit better bid for the better part of the year so far, we have seen a fresh wave of bond issuers, particularly the higher yielding ones, take advantage of market conditions by refinancing their outstanding bonds at significantly lower borrowing rates, a trend which was almost inexistent in 2018.
In the month what was positive were the re-affirmations of the Chinese Government which continue to pledge support in order to stabilize the economy. Previous attempts in doing so might have been reflected in the GDP data issued as at the end of March, in which China recorded an annualized growth of 6.4 percent versus consensus of 6.3 percent.
For two consecutive months the fund outperformed its internal comparable benchmark on a net basis, following the more volatile markets as opposed to January and February. The Manager believes that the fund is well poisoned both in terms of capital appreciation, based on its EM exposure which to date lacked its U.S. peers, but also from a volatility perspective, given its active management.
