Performance

This month saw an escalation in the confrontation between the US and Iran in the beginning of the month, which was short-lived and didn’t have a significant impact on the markets. The outbreak of the coronavirus in the second half of the month raised concerns among investors. The damage to the global economy will depend on how long it takes until the virus is contained. The only Chinese issuers we hold in our portfolios are online retail companies, which, along global pharmacy firms, have actually seen an increase in bond prices since the outbreak. However, overall, the bond markets continued the rally which started back in 2019, amid a truce achieved in the US-China trade conflict, with our fund earning 1.3% in the first month of the year. The long-awaited US-China phase-one trade deal was finally signed on 15 January. We expect the deal to drive a pick-up in trade volume and subsequently in industrial production and support a subdued global economic growth in the months to come. The wave of monetary easing around the globe continued this month, with South Africa, Russia and Turkey Central Banks all cutting their benchmark rates. The Fed and ECB, on the other hand left the benchmark rates unchanged. The key take-away from the Fed’ meeting this month is its increased concern about not meeting the inflation target, which means that no rate hikes are to be expected anytime soon. We think that rising political uncertainties, mainly coming from the US elections, will put pressure on the Fed for further easing in the second half of the year. The last day of January marked the official UK’s departure from the European Union. However, the parties are yet to negotiate a trade deal until the end of the year, which is unlikely to be easy, and another source of uncertainty to the markets this year. The primary market saw a revival with the beginning of year and continued showing increased activity throughout the month. With cash available from the recent subscriptions into the fund, we acquired several new issues: Norwegian Aker BP ASA (BBB-/Ba1), Banco Santander Chile (A/A1/A), State of Israel (AA-/A1/A+), Credit Agricole (BBB+/A/Baa1), Indian Power Finance Corporation Limited (BBB-/Baa3), Brazilian Globo (BB/Ba1/BB+) among others. We stick to conservative strategy keeping moderate duration, which is at 4.3 years as of the end of the month, and high level of investment grade bonds. The fund ended the month of January with average yield-to-worse of 3.3% and a cash position of 3.2% which we intend to fully invest seizing opportunities in primary or secondary markets.