28
|
THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 30 June 2015
D
uring the quarter there was a big shift in
attitudes in bond markets. Early in the
period many government bonds were
o ering negative yields as QE distorted
markets.A marked pick-up in European
in ation triggered a sharp sell-o , which also
had an impact on equity markets.The other
key development in the quarter was the
general election.The advent of a majority
Conservative government pleasantly
surprised the equity markets, with many
domestically orientated shares bene ting.
This might prove to be a honeymoon period
as all the measures to complete the return to
scal stability have not yet been instigated.
The commitment to an in/out referendum
on Europe will cause uncertainty, which has
been re ected by the ratings agencies putting
the UK’s investment grade on negative
watch.The ability to obtain concessions from
Europe will be a key feature to watch. During
the quarter, a new holding was acquired in
AmedeoAir Four Plus, while the holdings of
Boohoo, Cineworld, GKN and South32 were
sold. In addition, various other holdings were
reduced as their prices rose and their
dividends fell. US economic data is beginning
to suggest that the Federal Reserve could
start to raise interest rates.While any rise is
likely to be modest, this will probably
produce a period of increased volatility.
T
he second quarter of 2015 saw a
reversal of many key trends that were
present throughout the rst quarter.
Despite the absence of major economic
news, currency and xed income markets
were particularly volatile.With the Fed
rate hike timing still uncertain, the recent
drop in equity market volatility appears
contradictory.At the end of May, theVIX
Index fell below 12 for the rst time since
December. However, the spike in currency
and xed income volatility, the softening of
economic data and the widening of credit
spreads relative to last summer’s lows all
suggest that volatility may be surprising.
Most notably in the second quarter, both US
and European bond yields spiked to their
highest level for the year, driven in part by
a rise in in ation breakeven rates.This was
a sharp reversal of the decline in rates seen
throughout the rst quarter, where German
Bund yields dipped into negative territory.
The back-up in rates continued into June,
even as multiple signs pointed to a global
slowdown in growth. US real rates have now
risen by more than 0.50% since mid-April.
In terms of positive contributors to fund
performance during the period, emerging
market infrastructure and global water were
additive to returns. Investment grade debt
and property struggled, while other equity
sector exposures were relatively at as global
growth expectations remain unchanged.
George Luckraft
Zak Summerscale
BlackRock Market Advantage Team
T
he global senior secured bond market
has held up well during the second
quarter of 2015, despite bouts of broader
market volatility.Through the current
quarter, US economic indicators are starting
to show positive signs; speci cally within
sectors such as durable goods and housing.
Employment gures and new homes sales
have also illustrated a positive trend. In
Europe, unresolved negotiations with
Greece continue to cause headwinds.This,
coupled with government bond yields rising
sharply, has heightened risks around Europe.
Year-to-date European high-yield bond
new issuance has continued to be strong,
driven by re nancing activity. In comparison,
volumes in the US are slightly ahead of last
year’s tally, therefore continuing to provide
asset choices for investors. Going forward,
speculation surrounding oil prices, the global
political climate and mixed economic data
in the US and eurozone will continue to
in uence market conditions.That said, the
senior secured credit fundamentals remain
stable, with defaults at benign levels; and we
continue to see attractive opportunities to
deploy cash to buy a diversi ed pool of strong
credits for the International Corporate Bond
Fund.With the ECB continuing its asset
purchases, we expect the strong demand for
global senior secured bonds to continue as
investors look for attractive yields through
robust underlying credits.
BABSON CAPITAL
International Corporate Bond
Bond yields in the US and Europe are
providing choice for investors
BLACKROCK
Alternative Assets
Volatility remains in currency
and fixed-income markets
AXA FRAMLINGTON
Diversified Income
Allshare Income
Shares benefit from honeymoon
period of new government
Senior secured
credit fundamentals
remain stable
Europeanbondyields
spiked to their highest
level for the year
An in/out referendum
onEuropewill cause
uncertainty
