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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 December 2015
F
ollowing the broad-based sell-o we saw
over the summer, October saw a strong
rebound in risk appetite with high-yield
corporate spreads tightening, only to give this
back and more over the course of November
and early December, with high-yield spreads
now at their widest for the year.
There has been little change in terms
of the fundamental backdrop; although
leverage has trended upwards in some of the
more cyclical sectors, recent Q3 earnings
releases have not resulted in any meaningful
negative surprises and have been broadly in
line with (weaker) expectations.There has
also been an increasing number of instances
of emerging market (EM) companies acting
prudently and using their relatively strong
liquidity to tender for bonds to manage their
debt burden.
The main source of volatility was
commodity prices, in particular oil.The
political landscape is improving inVenezuela
andArgentina, whereas in Brazil there are
little signs of this as the macro environment
remains weak against a backdrop of an
intensifying‘Lava Jato’ anti-corruption
campaign. Now the issue of the beginning of
Federal Reserve rate rises is out of the way,
the focus should return to EM fundamentals.
BLUEBAY
Joint manager: Strategic Income
Dramatic fluctuations in the
commodities market increase volatility
Risk appetite returned
only to seemarket
drops at the endof Q4
B
rigade launched a multi-strategy credit
portfolio this quarter within the
St. James’s Place Diversi ed Bond fund.The
strategy seeks to generate long-term growth
of capital throughout a credit cycle, with an
emphasis on capital preservation and liquidity.
The investment team employs a
fundamental, bottom-up investment process
to identify the most attractive investments
within a particular sector or capital structure,
focusing on companies that have strong asset
coverage and generate positive free cash ow.
The strategy is centred on a exible mandate
that allows the portfolio management team
to tactically allocate across the various sub-
strategies within credit depending on the
opportunity set.While high-yield corporate
bonds (both senior secured and unsecured)
will comprise the majority of the portfolio,
the teamwill also invest in less traditional
sub-strategies including convertible bonds,
preferred securities, structured corporate
credit, stressed municipal debt and more-
liquid distressed investments.
Amid a volatile credit backdrop, we have
proceeded cautiously, with higher levels of
cash and a focus on senior secured bonds.
We have also been adding exposure to some
of the rm’s higher-conviction stressed
ideas, which provide attractive risk/reward
opportunities at current levels.
BRIGADE
Joint manager: Diversified Bond
Fund will target companies with good
asset coverage and cash flow
Newportfolio focused
on capital preservation
and liquidity
G
rowth and in ation levels continue to
struggle while the modest equity
market rally from September’s lows has
somewhat faded. It remains unclear if
declining activity levels are more re ective of
a natural, mid-cycle slowdown or if the
global economy is entering a prolonged
period of renewed weakness.
Conviction stock-picking helped the fund
deliver a positive performance in the fourth
quarter of 2015, while the wider UK equity
market saw volatility result in two successive
negative quarters. Consumer services was
the largest contributor, helped by strong
growth and the announcement of plans
for a merger with Paddy Power at Betfair.
Industrials’ positioning also contributed as
Intertek andAshtead bene ted from positive
trading updates; though a long position in
SIG struggled given the deteriorating market
conditions in Europe.
The negative market response to the
European Central Bank’s underwhelming
extension of its QE programme in early
December highlighted the latest example
of how policy change remains a key source
of market volatility. In addition, uncertainty
remains as to whether consumer and
corporate activity levels will be invigorated
by any further action from policymakers
or whether the weak growth pro le will
stagnate a little further.
BLACKROCK
UK Absolute Return
Betfair rallies on strong growth
and merger plans
Overallmarket has
sloweddue to a variety
of external factors
Nigel Ridge
Donald Morgan III
Polina Kurdyavko
