Performance

Our fund has registered a small -0.2% retreat in January. The month started on a high note, as the buying fervor, which had intensified post-November US elections, continued. However, lingering risks brought on by a slower-than-expected vaccination campaign roll-out, new mutated strains of the virus, along with disruptions in the retail trading of stocks, have reawakened some older worries and the mood on financial markets has become more cautious. The exhilaration in the first half of the month has been intensified by the Georgia runoff elections which brough two more seats in the Senate for Democrats and with it a majority voting power. With no end to the Covid-19 pandemic yet in view, markets have been taking more comfort in the news of the Democratic sweep, as the political stability and assurances of fiscal support prevail over all other policy concerns. Consequently, the yield on benchmark 10-year US Treasuries has reached its highest level of 1.1% since mid-March. There are numerous factors at play when it comes to the direction the US Treasury yields will go by the end of the year. Our base-case scenario implies a gradual increase of long-term yields, as the economy shows stronger signs of recovery, with any destabilizing, substantial rises likely mitigated by the Fed’s bond-buying programme. At their first policy meetings of 2021 both, Fed and ECB, have vowed their committed support and keeping bond buying programmes unaltered. Brent oil prices have edged towards 60 mark. The price has closed January at over US$56 per barrel, a 7.8% increase from December’s highest level, having been propelled by the Saudi Arabia government announcement of its voluntary unilateral cut of additional 1 million barrels a day. We have gone into the new year fully invested, as we expected the economy to continue to recover and the Fed policy to remain accommodating. At the same time, due to near-term risks related to the rise in Covid-19 infections, we maintain a defensive stance, favouring credit quality over yield and short over long duration. We have added some new issues of companies we already hold (Adani Ports (BBB-/Baa3), Oman Electricity (BB-)), and added several new issuers to our fund portfolio holdings: Mexico Remittances Funding (BBB-), Credito Real (BB/BB+), Mercado Libre (BB+). Our fund closed the month with 4.8% leverage, average duration of 4.6 years and average yield-to-worse of 2.4%.