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Rubrics Emerging Markets Fixed Income UCITS Fund (USD) - D - News
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Rubircs EM Fixed Income UCITS comment - Mar 19
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Thursday, 13 June 2019
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Fund Manager Comment
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Fund Commentary
The Rubrics Emerging Markets Fixed Income UCITS Fund (USD Class A) returned -0.23% in May. The USD continued to strengthen over the period and emerging market currencies underperformed as a result. The local currency JP Morgan EMLI + index returned -0.66% for the month while the hard currency sovereign JP Morgan EMBIG index returned +0.41%. In terms of contribution to Fund performance, exposure to local currency denominated securities returned -0.49%* whilst hard currency bonds returned +0.26%*.
The stronger USD weighed on EM currencies in May as the JP Morgan EM Currency Index declined by -1.51% on the month. While hard currency EM spreads moved wider, by 26bp as measured by the Bloomberg Barclays EM Hard Currency Aggregate index, the move lower in US yields meant performance was still positive. Despite ongoing tension between Turkey and the US over its order of Russian missile systems, the currency recovered some of its recent losses in May, gaining over 2%. The Argentinian Peso stabilised after hitting a record low in April. Brazil saw increased volatility as concerns over the pension reform progress saw the Real trade through the important 4.00 level vs the USD, up to 4.10, before recovering to finish the month close to unchanged at 3.92. The Mexican Peso was one of the weakest currencies as Trump’s announcement of sanctions on Mexican imports sent the Peso to the lowest level since late 2018, weaker by 3.5% on the month. Weakness in the oil price weighed on commodity currencies, with the Russian Ruble losing steam in its recent rally and falling 1.2% in May. India’s general election victory for Modi was taken positively by markets with the currency almost unchanged on the month. The Fund reduced its local currency exposure to 34% at the end of May from 53% at end April. The Fund maintains a significant allocation to cash equivalents in order to be in position to take advantage of opportunities that may arise in the EM space. *Source: Bloomberg. Attribution gross of fees and in USD
Market commentary
Trade wars and their impact on global growth dominated market thinking in May. Negotiations between China and the US broke down, US tariffs on Chinese imports increased, China announced retaliatory tariffs, the US announced restrictions on doing business with Huawei and Trump opened a new front in the trade war with tariffs on Mexican imports. Against this backdrop the market implied probabilities of a Fed rate cut increased sharply and US treasury yields fell accordingly. As at the 31st of May, the Fed Funds market was pricing in 54bp of rate cuts in 2019. US 10y treasuries rallied 38bp throughout the month to close at 2.12%. Elsewhere German 10y bunds set a new intra-month low in yield of -0.21% to finish May at - 0.20%. Oil reversed some of its YTD gains and fell by 16% as concerns over global growth impacting demand weighed on prices. The escalating trade war and its impact on growth also weighed on equities with the S&P 500 falling 6.6% and the German DAX falling 5.0%. Chinese equities furthermore suffered from the collapse in trade negotiations with the Shanghai Composite falling 5.8%. Chinese economic data showed some weakness with trade data and industrial production notably disappointing and sending the Citi economic surprise index back into negative territory. Global PMI data has also been coming in lower than expectations. Looking ahead the focus will be on Central Bank meetings and speakers as the market looks for confirmation from the Federal Reserve as to whether its pricing on rate cuts is justified. The ECB will also look to reassure markets it hasn’t run out of policy room as 5y forward 5y inflation swaps fall to levels not seen since 2016 when the ECB increased the size of its QE program.
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Fund Name Changed
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Tuesday, 22 March 2016
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Official Announcement
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The ACPI Emerging Markets Fixed Income UCITS Fund will change it's name to Rubrics Emerging Markets Fixed Income UCITS Fund, effective from 22 March 2016
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