Monthly Commentary April

GAM Star Credit Opportunities (USD)

In April, we saw an improvement from the “risk off” adjustments experienced during the first quarter of the year. Market sentiment is still relatively soft, the US Dollar 10-year interest rate increased from 2.74% to 2.96% and the fund reported a small decline.

During the month, we were active both on the primary as well as secondary market. For example, we participated to the new issue of Zurich insurance, a Tier 2 security rated “A” by S&P. The coupon is fixed at 5.125% up until 2028 and then if not called, resets every 5 years based on outstanding swap curve plus the initial spread of 326bps. As 10-year interest rates have risen to around 3%, we believe the fixed rate holdings in our fund, including many fixed-to-floater securities which give yields of well over 5%, such as the HSBC contingent capital notes, represent good value. For our floating rate notes, higher short-term rates are also clearly a benefit.

The fundamental results of our companies, both the banks and insurers, continue to show progress in the multi-year process of capital strengthening. This reinforces their value within the context of historically wide credit spreads. The income offered by our portfolio continues to provide an attractive return and the fund is well positioned for an environment of potentially higher rates by owning more than 50% in fixed-to-floater securities, almost 15% in discounted floating rate notes, as well as a number of high coupon securities with relatively short issuer call dates. There remain a wide number of securities where it is possible to lock into attractive yields going forward.

GAM Star Credit Opportunities (GBP)

In April, we saw an improvement from the “risk off” adjustments experienced during the first quarter of the year. Market sentiment is still relatively soft but the fund was able to make small capital gains, in an environment where yields on UK Gilts increased by 8bps to 1.43%.

We participated in two new issues during the month, which both had investment grade ratings of BBB-. The first issue was 4.478% Quilter 2028 which has a call and a reset in 2023. The issue was to finance the takeover of the Old Mutual wealth management business. The second issue was Phoenix subordinated debt rated BBB-. The coupon is fixed at 5.75% up until 2028, and then if not called, resets every 5 years based on the outstanding swap curve plus the initial spread of 417 bps.

Otherwise in the secondary market, investments have been made in a variety of holdings including US dollar investments in 6.625% Leucadia 2043 at 107% and 4.75% Julius Baer contingent capital securities at 94% which have an interest reset in 2024.

The fundamental results of our companies, both the banks and insurers, continue to show progress in the multi-year process of capital strengthening. This reinforces their value within the context of historically wide credit spreads. The income offered by our portfolio continues to provide an attractive return as well as some potential for capital gains.

GAM Star Credit Opportunities (EUR)

In April, we saw an improvement from the “risk off” adjustments experienced during the first quarter of the year.

Market sentiment is still relatively soft but the fund was able to make small gains in spite of a rise in the 10-year German bund rate from 0.49% to 0.58%.

During the month, the fund participated in several new issues denominated in euro, including fixed-to-floater securities 4.25% KBC Group with an interest refix in 2025 and 5.75% Deutsche Pfandbriefbank with an interest refix in 2023. We also invested in the investment grade rated bonds of German company, Grand City Properties, as well as investment grade issues from Phoenix and Aegon.

Within the secondary market, a wide variety of securities was purchased at attractive levels. Yields remain well above 4% for many of our holdings and the fund is well positioned for an environment of potentially higher rates by owning more than 50% in fixed-to-floater securities and almost 15% in discounted floating rate notes, as well as a number of high coupon securities with relatively short issuer call dates.

There remain a wide number of securities where it is possible to lock into attractive yields going forward.


Twitter


Linkedin


Google-plus


Envelope

14 May 2018

More News & Views



ALL NEWS & VIEWS

© 2017 Atlanticomnium.

Authorised and regulated by Swiss Financial Market Supervisory Authority FINMA. Authorised and regulated by the Financial Conduct Authority FCA. The information and materials on this site do not constitute any form of advice. This website and all the information contained in it does not constitute a formal commitment by the company Atlanticomnium. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of this website and all the information in it is strictly prohibited. We decline all responsibility for any errors or omissions in the contents of this website and all the information contained in it which arise as a result of electronic transmission. If verification is required please request a hard-copy version. This website and all the information contained in it should not be construed as an invitation or offer to buy or sell any securities or related financial instruments.

  • 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.