Monthly comment

November was a very strong month for risk assets in general, following some positive macroeconomic data. We seem to be in the gradual disinflation scenario combined with a soft landing. This was taken positively by global markets and also meant that spreads on our securities had tightened. However, it is important to note that spreads on subordinated debt of financials remain wider than historical levels, and as such we believe that when the spreads tighten, there will be a combination of high income and capital appreciation. 

Valuations and Fundamentals

We have come to the end of Q3 earnings season while results are very strong and resilient, especially from credit perspective. Financials continue to benefit from the higher interest rate environment, as this has resulted in higher net interest income. Subordinated debt spread of financials tightened during the month, which was in line with our expectation of repricing. As such, subordinated debt of financials remains extremely attractive, especially on a relative basis. For instance, spreads on subordinated debt are still significantly wider than high-yield bonds. Most of the debt securities we own are issued by Investment Grade companies, and in the case of a recession these credits should be significantly more resilient as demonstrated in the past. Given the attractive valuations and potential room for spread tightening of our securities, our strategy is positioned to seek higher yields and price appreciation. 

Subordinated Debt

Technicals on subordinated debt of financials, notably for Additional Tier 1 bond (AT1) Contingent Convertibles (CoCos), have been extremely positive in November. Within AT1s, we saw 9 new issues, raising nearly USD 10 billion. The AT1 market is definitely alive and kicking, with demand for these new issues a staggering USD 75 billion, that is approximately 36% of the current market size. This really makes us believe that prices have a lot more room to keep going up. On top of that, we also saw other positive drivers, such as Banco Santander calling the AT1s they had not called in summer. It means that all the AT1s of national champions with a call date in 2023, got called. This is very much in line with what we have seen historically. Despite this, the extension risk (or non-call risk) remains largely overstated, while the AT1 market is still pricing in a bearish scenario where more than 55% of the AT1s are not expected to be called. We also see this extension risk largely overstated within other parts of the subordinated debt market, such as Restricted Tier 1s (RT1s), corporate hybrids and callable Tier 2s. 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 further strong recovery. We believe this should benefit the fund going forward on top of the high income we are capturing.

  • The Valuation date: February 22, 2024
    serieAsOFDateFKFund NameISINMTDYTDSIMTDYTDSI
    120,240,220GAM Sustainable Climate Bond fundIE000BSJBO14-0.0060-0.0037-0.0737-0.60-0.37-7.37
    220,240,220GAM Star Crdt Ops EUR InvIE00B50JD354-0.00250.02190.5227-0.252.1952.27
    320,240,220GAM Star Crdt Ops GBP InvIE00B510J173-0.00090.01400.7891-0.091.4078.91
    420,240,220GAM Star Crdt Ops USD InvIE00B5769310-0.00140.01320.7084-0.141.3270.84
    520,240,220GAM Interest Trend IncIE00BYM4P913-0.00150.01170.2751-0.151.1727.51

  • 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