September was a challenging month as the macro backdrop continues to be difficult, with notably concerns regarding inflation, the potential for a hard landing, the energy crisis and events in the UK following the appointment of the new prime miniser. However, valuations have become attractive, in our view, as spreads have widened significantly year-to-date. This is despite the fact that credit fundamentals of financials remain strong, as asset quality is currently the strongest we have seen over the last 15 years and capital ratios remain high with common equity tier 1 (CET1) ratios of European banks still well above 15%, which is close to the all-time highs. For the insurance companies, especially life insurers, we have seen their capital ratios increase with the higher interest rates. Most European insurances have more than two times the capital required. We believe financials will benefit within a context of higher interest rates.
Moreover, as stated above, valuations are getting close to the wides of Covid, despite the strong credit fundamentals. On top of that, we are capturing significantly high income. As an example, BBVA 6.5% currently has a yield to next call in 2025 of 12.5%. The yield to worst is close to 10%. As we can see most of the subordinated debt is pricing extension risk (around 90%). As an example, additional tier 1 (AT1), restricted tier 1 (RT1) and corporate hybrids are perpetual bonds which have call dates and a strong track-record to be called at first call date. During positive market periods, we believe they should benefit going forward as valuations tighten and these sequentially will reprice to the next call date. During risk-off environments such as this year, callable perpetual bonds tend to reprice to maturity, creating a double-negative effect on prices. However, the opposite is true too, ie when markets begin to normalise, spreads of those bonds start to tighten, leading to a re-pricing to next-call date and sequentially creating a double-positive effect on prices. As the large majority of our bonds are pricing the extension risk, we believe they should benefit going forward as valuations tighten. In the meantime, we are getting considerably high income
  • 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