Macro Backdrop

We saw calmer markets in April, following the strong volatility we experienced in March. The direction of markets seems to be largely guided by the upcoming central bank meetings and future macroeconomic data. Despite the continued woes of First Republic Bank in the US, markets seemed to have moved on from the banking crisis. We believe that investors understand that US regional banks and Credit Suisse are two idiosyncratic events, which do not have any read across to the current credit fundamentals of other national champion banks in Europe and the UK. 

Valuations and Fundamentals

We saw positive performance in April, which is largely linked to the income we have been receiving. Spreads on subordinated debt of financials have remained relatively stable, after having significantly widened in March. As such we believe valuations are at attractive levels. Moreover, we are in the middle of Q1 earnings season and for the moment we have seen strong results from European banks. Common Equity Tier 1 (CET1) ratios remain at very high levels and the profitability of banks remains strong. In terms of bank deposit flows, on aggregate these have been stable, and we have not seen any European national champions experience large deposit outflows, with some even experiencing inflows. We believe that over time, investors will regain confidence investing within financials, as credit fundamentals remain at strong levels and higher interest rates translate into higher profitability. This higher profitability should mitigate any increase in non-performing loans (NPLs). In the meantime, the fund is receiving strong income, and that should be a factor that helps us going forward. 

Subordinated debt

 We saw some positive events within the subordinated debt markets in April, namely that UniCredit and Lloyds have both called Additional Tier 1 (AT1) contingent convertibles (CoCos). These calls demonstrate that extension risk is largely overstated. More than 90% of the AT1 market is still pricing extension risk (ie non-call risk), despite the fact that more than 95% of AT1s have historically been called. Furthermore, a large part of the AT1 CoCos which are callable this year have already been pre-financed, meaning that they are likely to be called. Within other parts of the subordinated debt markets, such as Restricted Tier 1s (RT1s), corporate hybrids and callable Tier 2s, we also see this extension as being largely overstated. As we have often pointed out, during risk-off environments such as in 2022 and currently, callable perpetual bonds tend to reprice to maturity, creating a double-negative effect on prices. However, the reverse is true when markets are stronger, and as such we expect to see strong recovery while continuing to capture high income. As an example, Barclays’ 6.375% Perpetual is currently trading around 86% which means a yield to maturity of close to 10.5%, but a yield to call of more than 13%. 

  • The Valuation date: June 18, 2024
    serieAsOFDateFKFund NameISINMTDYTDSIMTDYTDSI
    120,240,614GAM Sustainable Climate Bond fundIE000BSJBO140.00440.0146-0.05670.441.46-5.67
    220,240,614GAM Star Crdt Ops EUR InvIE00B50JD354-0.00320.05820.5768-0.325.8257.68
    320,240,614GAM Star Crdt Ops GBP InvIE00B510J173-0.00080.04980.8523-0.084.9885.23
    420,240,614GAM Star Crdt Ops USD InvIE00B5769310-0.00040.04980.7701-0.044.9877.01
    520,240,614GAM Interest Trend IncIE00BYM4P913-0.00250.04580.3181-0.254.5831.81
  • Please read this important legal information before proceeding.Information contained herein are solely for the use of the person who has accessed this information and may not be reproduced or distributed, even partially, to any other person or entity.The material contained herein is confidential and intended solely for the use of the persons or entities with nationality of or respectively with their residence, domicile, registered office or effective administration in a State or Country in which distribution, publication, making available or use of the information is not contrary to applicable laws or any other regulation.The material contained herein is aimed at sophisticated, professional, eligible, institutional and/or qualified investors/intermediaries who have the knowledge and financial sophistication to understand and bear the risks associated with the investments described.The information is solely product-related and does not take into account any personal circumstances and does not qualify as general or personal investment recommendation or advice. In particular, the information is given by way of information only and does not constitute a specific legal offer for the purchase or sale of financial instruments. Moreover, nothing contained herein is constitutive of any tax advice.Every effort has been made to ensure the accuracy of the financial information herein but the information contained herein has not been independently reviewed or verified. Therefore, Atlanticomnium SA gives no assurance, express or implied, as to whether such information is accurate, true or complete and no responsibility is accepted by Atlanticomnium SA for any errors or omissions. Third-party content is the property of its respective provider or its licensor and is protected by applicable copyright law.Past performance is not indicative of future performance. The price of shares/units and the income from the funds/trusts can go down as well as up and may be affected by changes in rates of exchange or financial markets fluctuation, out of the scope of Atlanticomnium SA.To the fullest extent permitted by law, in no event shall Atlanticomnium SA or our affiliates, or any of our directors, employees, contractors, service providers or agents have any liability whatsoever to any person for any direct or indirect loss, liability, cost, claim, expense or damage of any kind, whether in contract or in tort, including negligence, or otherwise, arising out of or related to the use of the information provided.
  • PERFORMANCE