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THE INVESTOR CENTRE
All information correct as at 30 June 2016
T he rally in emerging market
corporate debt which began
towards the end of Q1 continued and
gathered pace into Q2, fuelled by a
rebound in commodities, increasingly
dovish central banks and a stabilisation
in economic data.
Emerging market companies have
also been acting prudently and
proactively managing their liquidity
pro les,with some buying back their
bonds.Others have embarked on asset
sales, cut capex and undertaken
bondholder-friendly activities. In
addition,market default rates
continued to be at very depressed
levels, and this paved the way for the
market to perform extremely well.
Our portfolio has sought to keep
pace with this rally and, although it has
trailed slightly on a relative basis, it has
delivered strongly positive absolute
are alsopositioned toprotect
the portfolio if wewere to see a reversal
of this strong performance in H2.
Looking forward, there are sources
of uncertainty,most recently with the
fallout from the Brexit result,where
the outlook remains think
that the volatility will be somewhat
contained and unlikely to cause
material contagion.
BLUEBAY
Joint manager: Strategic Income
Portfolio takes advantage of emerging
market rise to deliver positive returns
Rally in emerging
market corporate
debt gatheredpace
The second quarter of 2016
experienced a credit-friendly
macroeconomic backdrop with three
consecutive months of positive returns
for high yield.High-yield new issue
volume continued to growwhile
default rates subsided towards the
latter half of the quarter.
Despite an underwhelming May US
employment number,we are optimistic
on the US economy and the strength
of the consumer, and expect modest
economic growth. Looking abroad,we
are less positive and remain cautious,
especially given recent developments
in the UK.
We were positioned well to take
advantage of the tightening spread
environment throughout the quarter
and exhibited strong returns.One of
the largest contributors was a high-
yield bond position inAdvancedMicro
Devices.The bonds continued to rally
after the company announced
above-forecast earnings inMay. Bond
exposure to retailer Claire’s Stores
detracted for the quarter after it reported
soft Q1 numbers, driven by weakness
in its European business operations.
We have maintained selective sector
hedges to mitigate downside risk.
BRIGADE
Joint manager: Diversified Bond
Portfolio posted strong returns thanks
to Advanced Micro Devices
Outlook for theUS
economy remains
positive
After relative calm at the start of
the quarter, a resurgence of
investor uncertainty and volatility took
hold in June ahead of the UK EU
referendum, taking markets materially
anaemic growth pro le
remains in place across much of the
global economy but this binary event,
the rst of many key elections over the
year, is a pivotal moment, not only for
the UK, but also for the political and
economic future of Europe.
The portfolio has avoided the falls
seen in the UK equity market and
delivered a modest positive gain
primarily due to gains in the short
book. Short positions across the
consumer goods’ space have
contributed signi cantly.Alpha has
come from a company exposed to the
value end of the retail market, and a
high-end luxury retailer where growth
has fallen below expectations.While 3i
Group ( nancials) aided performance,
disappointment fromthe long bookwas
experienced inEssentra (industrials) as it
signi cantly reduced earnings guidance.
Ongoing management of the fund’s
overall positioning has continued and
wehavedialleddown thegross exposure
by around 10%, given expectations of
further market volatility.
BLACKROCK
UK Absolute Return
Good short positions in consumer
goods lead to positive returns
Relative calm in
markets upset by
Brexit uncertainty
Nigel Ridge Donald Morgan III Polina Kurdyavko
32 | THE INVESTOR