The Fund delivered a positive return in both absolute and relative terms in June.
Despite adverse conditions, our portfolio benefited from its main investment themes, whether investment grade or high yield, such as financials, energy, special cases and restructuring.
Our credit index hedging strategies also made a positive contribution to performance as spreads widened.
Our collateralised loan obligations also had a positive effect.??
We are still concentrating on our main investment themes through a selection of high yield bonds in the energy and financial sectors, and collateralised loan obligations (CLOs).?
In these volatile conditions, we are holding our credit market hedging strategies above 20% to protect the portfolio from the risk of further market dislocation, while focusing on alpha.
After remaining low for several years due to the liquidity glut and low cost of capital, default rates will probably return to more normal levels, which we view as a catalyst likely to create real opportunities in special situations.
The portfolio’s high carry (over 7%) and attractive credit valuations should mitigate short-term volatility and generate medium- and long-term performance.
Europe | 69.7 % |
North America | 11.5 % |
Latin America | 8.9 % |
Asia | 4.2 % |
Eastern Europe | 3.4 % |
Middle East | 1.8 % |
Africa | 1.5 % |
Asia-Pacific | 0.3 % |
Total % of bonds | 101.2 % |
The Fund has access to the entire credit universe, allowing us to explore the potential of multiple liquid credit instruments across the world, from the most to the least risky, and thus find opportunities in different market conditions.
Market environment
US inflationary pressure eased a little in June, with the rate falling to 3.3%, but momentum remained strong in the labour market and in services where activity picked up again.
At its FOMC meeting, the US Federal Reserve therefore left its interest rates unchanged, with members predicting a cut by the end of this year.
The ECB knocked 25 bps off its key interest rate at its monthly meeting, but reiterated that any future cuts will be data-dependent.
However, risk aversion was high as the political spectrum became more polarised in European elections, causing spreads on the Itraxx Xover index to widen by 23 bps.
The dissolution of France’s National Assembly and rise of opposition groups revived fears about public finances, pushing the spread between French and German bond yields above the 80bps threshold.