The Investor 89

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32 | THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 March 2016
It has certainly been a volatile start to
the year. January saw a continuation
of last year’s weaker commodity
prices,weaker data and lacklustre
global growth, and volatility in
Chinese currency and equity markets.
Into February, European banking
sector and Brexit fears led to
heightened volatility in the developed
world.However, central banks were
dovish in Europe and in the US,where
recent rhetoric suggests that the path
higher will be even more gradual.
This, in parallel with a stabilisation
in commodity prices, paved the way
for a risk-on rally in the latter part of
February and intoMarch.Against that
backdrop, the emerging market
high-yield corporate market delivered
positive absolute returns in excess of
3.5% year to date. Spreads initially
widened by around 100 basis points in
January, but since retraced this and
were around 20 basis points tighter on
the year at the time of writing.
We are exercising caution in the
portfolio with a preference for more
defensive sectors, such as utilities, and
maintaining an underweight in some
of the weaker segments of the market,
such as metals and mining.
BLUEBAY
Joint manager: Strategic Income
Portfolio continues to take defensive
stance with focus on utilities
Brexit fears led to
heightenedvolatility in
the developedworld
Volatility in the leveraged finance
market persisted into the start of
the year after spiking in Q4 2015.The
high-yield and loan markets continued
to face technical pressures through
outflows from retail funds and a host
of ratings downgrades, particularly in
the energy space.Nonetheless, the
broad sell-off in high yield proved
overstated, reversing mid-quarter to
recover all losses YTD and finish
positive for the quarter.
We remain cautiously optimistic on
the US, as recent economic data and
consumer confidence suggest that the
US economy remains on track to grow
at a modest pace.Despite this,we
remain wary of the ramifications from
a deceleration of growth inChina,as
well as the effectiveness of negative
interest rate policy in stimulating
growth.The portfolio posted a strong
quarter, led by positions in high-yield
corporate debt.One of the largest
contributors was a high-yield bond
position inToys RUs.Aposition in
Intelsat detracted from performance.
We believe that recent dispersion in
high-yield presents an attractive
opportunity for alpha generation via
fundamental,bottom-up credit selection.
BRIGADE
Joint manager: Diversified Bond
Portfolio’s strong performance helped
by Toys R Us high-yield bond position
High-yield and loan
markets continued to
face technical pressures
Fears of low growth and deflation
have escalated in 2016.
Paradoxically, following large declines
in recent years, commodity prices and
resource-related shares have bounced
off their lows.More widely, significant
volatility has accompanied a fall in
equity markets.
The fund’s modest cyclical bias,
within financials in particular,
struggled in the quarter as short
positions failed to offset losses in the
long book. Real estate shares suffered
large falls, and fears over London
property prices contributed to Capital
&Counties dropping.HSBC reported
disappointing revenue,while
Hargreaves Lansdown fell with the
market despite good the
contributors, ongoing operating
momentum in Paddy Power Betfair
continued after its recent merger.
A short retail position within
consumer services added alpha as the
company reported downgrades.
Defensive shares showed steady
growth ahead of expectations,making
RELX the most notable long to aid
do not think events in
2016 signal a turning point in the
economic cycle, or that a global
recession is imminent.
BLACKROCK
UK Absolute Return
Strong momentum at Paddy Power
Betfair boosted portfolio
Significant volatility
has accompanied
a fall in equitymarkets
Nigel Ridge Donald Morgan III Polina Kurdyavko