The Fund delivered a positive return in both absolute and relative terms over May.
Our portfolio benefitted from its main investment themes, whether investment grade or high yield, such as financials, energy, special cases and restructuring.
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 kept 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 stand-out opportunities.
The portfolio’s high carry (over 7%) and attractive credit valuations should mitigate short-term volatility and generate medium- and long-term performance.
Europe | 68.5 % |
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 | 100.0 % |
Market environment
May brought the first signs of normalisation for the US economy and labour market, as well as a surprising drop in retail sales.
Although inflation was slightly lower, Federal Reserve members remained cautious over the month.
The trend was the opposite in the Eurozone. GDP had already firmed up in the first quarter, and more signs of recovery emerged with the composite PMI accelerating.
The improvement was also visible in inflation figures, which rose again in May (+2.6% vs. +2.4%).
This desynchronisation led to a sharp drop in US yields, with the 10yr down 18 bps over the month but the Eurozone trend more upward.
Investors regained their appetite for corporate bonds, as reflected in spreads on the Itraxx Xover index narrowing by 22 bps over the month.