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Rubrics Global Credit UCITS Fund D - News
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Rubrics Global Credit 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 Global Credit Fund returned +0.17% in May (USD Class A), bringing 2019 performance to +3.88%.
May saw increased market risk aversion, resulting in a further lowering of government bond yields (UST, Gilt and Bunds) and a relatively orderly widening of credit spreads amongst both vanilla senior unsecured credit and higher yield instruments.
Market conditions created pockets of volatility during the month which the Fund was able to take advantage of - we added to BNP 7.625 % USD bond (callable March 2021) for the first time this year. We also took the opportunity to add to our position in BHP’s October 2020 corporate hybrid. We continue to see "good call behaviour" from European banks in AT1 and Legacy Tier 1 paper - during the month we saw Lloyds announce their decision to call the Lloyd’s 7% £ perpetual in June, a bond in which the Fund has a 1.4% position.
As we enter June the Fund remains well placed with a gross portfolio USD yield of around 4.0% and conservative duration profile of around 2.0. We believe modest positioning is optimal at the present time as we believe it puts the Fund in a good position to absorb potential market dislocation and to add credit if market conditions create compelling buying opportunities.
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 Global Credit UCITS Fund will change it's name to Rubrics Global Credit UCITS Fund, effective from 22 March 2016
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