Performance

The bond markets have continued their rally amid an increased search for yield in an ultra-low interest rate environment. Our fund has added 1.3% in the last month of the year. Thus, our leveraged bond strategy wrapped up 2020 with 16.8% performance before fees. The mood has been sustained by the commencement of the vaccination campaign, which has fueled hopes that the pandemic can soon be overcome. The vaccine optimism has outpaced the worries related to the rise in infections and reinstated lockdown measures. Inflows momentum in Emerging Markets hard-currency bond funds has continued, driving Bloomberg Barclays EM USD Index spread tighter by further 22 basis points in December. Politicians in the US and Europe have also provided support to the markets. The US Congress has finally agreed on a new fiscal package, which was subsequently signed by President in Office Trump. Over the Atlantic, Brexit deal has been finally agreed right before Christmas, thus clearing some of the years-long uncertainty. At its December policy meeting, the US Fed has expressed its commitment to continue purchasing bonds ‘until substantial further progress has been made’ in achieving employment and inflation goals. The dot plot revealed that a majority of Fed officials do not expect any rate hikes through to 2023. In the first half of December we have made some further investments on the primary market, namely, in new bonds issued by the Hong Kong Airport Authority (AA), global internet company Prosus (BBB-/Baa3), the city of Istanbul (BB-), the Government of Morocco (BBB-/BB+), the Spanish electric company Enfragen Energia Sur (BBB-). We have eliminated our position in the Indian chemical company UPL (BBB-/Baa3), as we consider its bonds overpriced for risks entailed. We head into the new year fully invested, as we expect the economy to continue to recover and the Federal reserve 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 to high yield and short to long duration. We continue to favour primary markets for investments. The fund average yield-to-worst stood at 2.3% at the end of December, while the average duration - at 4.6 years. Leverage has come down to 0.5%.