During the month of September, spreads within our securities remained relatively stable to slightly weaker, despite concerns linked to tapering, higher interest rates, China’s Evergrande and higher energy prices. This low volatility once again demonstrates the strong technical demand for the securities held within our portfolio. With spreads of approximately 310 bps, the subordinated debt of financials remains an attractive asset class, especially considering the strong fundamentals in terms of credit quality. On top of that, subordinated debt has low sensitivity to interest rates, as demonstrated by the performance of UK gilts, which moved up by 30 bps, as well as the year-to-date performance. 

As of 1 October, European banks do not have any restrictions linked to dividend payments. To our minds, this demonstrates the strength of European financials and the fact they have been extremely resilient during the global health crisis we have experienced. Non-performing loans are currently at low historical levels and capital is at the highest historical level with Common Equity Tier 1 (CET1) ratios close to 16%. As such, we have strong visibility regarding the income we are receiving from coupon payments. 

To conclude, we believe our strategy is well positioned for the current environment. As we have demonstrated in the past and indeed in 2021 to date, our strategy has low sensitivity to interest rates. Moreover, we are still generating high income, with good visibility due to the strong credit quality of financials. Finally, valuations remain attractive, and as such, we believe the fund should benefit from that going forward. 

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