NGGBF UCITS Monthly - July 2019

  • The Fund’s QDEUR Hedged class gained 1.35% (net of fees) in July; +9.90% YTD

  • More mixed performance across assets as markets waited for news from the July FOMC

  • US Fed cut rates 25 basis points but Powell's mixed message left markets on edge

  • US yield curve flattened, shorter dated yields rose as many had expected a 50 bps cut

  • President Trump exacerbated concerns with fresh tariffs on China post month end

  • We think there is much more “left in the tank” regarding our bond positions as valuations still “cheap”

  • The path for global rates is lower

We have been monitoring our Omani positions for some time now. Although bonds rallied through March and April, the market never quite reached our target to reduce exposure, and then in May the long dated bonds underperformed on market rumours, later unfounded, of a default. In July however, following strong performance, our target was reached and we sold the long dated position in Oman around 9 points higher than the low pricing of May, as it had reached less than 1 credit notch cheap according to our Relative Value Models. 

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NGGBF UCITS Monthly - June 2019

  • Fund’s QDEUR hedged class gained 2.18% (net of fees); +8.44% YTD

  • Slowing growth and dovish central banks support bond markets

  • US-China trade tensions continue; some reprieve at month end

  • Geopolitical tensions between the US and Iran escalate; oil price benefits

  • US dollar index (DXY) fell 1.7%

The Fund’s GCC holdings continued to perform well despite an escalation in tensions between the US and Iran: the Abu Dhabi and Qatar holdings contributed 75bps and 61bps respectively to performance. Mubadala 6.875% 2041, State of Qatar 6.4% 2040 and Abu Dhabi Crude Oil Pipeline 4.6% 2047 were amongst the main contributors over the month and YTD. YTD these holdings contributed 2% to performance. 

Given ~$13.4tn of bonds are now trading on negative yields it is not altogether surprising that GCC bond markets have been strong performers as investors search for areas where positive yields, attractive fundamentals and valuations are available. This is particularly so for GCC fixed income markets where greater index inclusion has been raising investor awareness. For example, sovereign issues such as the State of Qatar 6.4% 2040 issue (rated Aa3/AA- by Moody’s/S&P) trades on a yield of ~3.5% and trades ~2.7 credit notches cheap on our models. A number of quasi sovereign issuers also look attractive e.g. Abu Dhabi Crude Oil Pipeline 4.6% 2047 (rated AA by both S&P and Fitch) trading on a yield ~3.7% and trading ~4.2 credit notches cheap.

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NGGBF UCITS Monthly - May 2019

  • The Fund’s QDEUR hedged class gained 1.04 (net of fees)

  • Bonds outperform as US Treasury yields extend rally

  • Trade frictions weigh on the economic outlook

  • Fed in pause mode, but for how long?

Spreads have performed very well during the month in regard to the better rated assets; lesser rated assets have struggled and even resulted in individual names giving a negative performance on the month. Of course as mentioned above the long end of the US Treasury market out performed with a stunning price performance but other highly rated credits have performed with similar vigour.

The top performers during the review period were the long dated US Treasury bonds, two holdings, and the Mubadala 41’s, these three issues made up almost half of the month’s total performance. Indeed the Middle East continues to perform well with the Abu Dhabi government bond holding maturing in 2047 also in the top five contributing bonds. So far this year Abu Dhabi and Qatar are the best two country contributors with Mexico and the US also performing well. However, on the month our Mexican holdings, two bonds, in the oil company Pemex were underperformers as the issuer had a difficult month due to continued worries over the Mexican government's funding schedule, however, Mexico continues to perform well year to date and has added about 1% to the fund’s total performance. The other underperformer was Oman, two government bonds, the 27’s and the 47’s which detracted around 10bp on the month as investors moved into higher rated credits. We also will look for an opportunity to reduce exposure to Oman but prefer to wait for more realistic pricing to enact the reduction. In terms of currency we have retained our 5% position in the Chinese Renminbi and 3% in the Japanese Yen with the Yen a small positive contributor to performance on the month offset by the Renminbi’s negative contribution resulting in a 5bp negative result.

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NGGBF UCITS Monthly - April 2019

  • The Fund’s QDEUR hedged class gained 0.48% (net of fees)

  • Mixed month across asset markets; some improvement in the growth outlook

  • UST 5y-30y curve steepens; IG credit spreads tighten

  • US dollar index (DXY) gained 0.2% on the month

The portfolio targets high quality credits (average A3 rating) focused on creditor nations and countries with net foreign liabilities (NFL) less than 50% of GDP.  The portfolio’s GCC holdings continued to perform well: Abu Dhabi, Qatar and Saudi Arabia in particular are benefiting from greater index inclusion, strong creditor profiles/NFA positions and compelling valuations and together contributed 50bps to performance. The holding in Abu Dhabi Crude Oil Pipeline 4.6% 2047, rated AA by S&P and Fitch, was one of the top contributors to performance: with a yield of 4.18% and trading ~4.4 credit notches cheap on our models we still see further upside. Saudi Arabia and Russia, as key oil producers, also benefited from the stronger oil price and the US announcing an end to waivers on Iranian oil imports: the Fund’s Russian holdings contributed 13bps to performance.

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NGGBF UCITS Monthly - March 2019

  • The Fund’s QDEUR hedged class gained 2.17% (net of fees)

  • As expected, the Fed left the Fed funds target range unchanged

  • USTs rally on the back of a dovish Fed

  • US dollar index (DXY) gained 1.17%

The Fund’s US positions contributed 55 bps to performance helped by the strong rally in the UST positions on the back of a more dovish Fed.  The Mexican holdings were also strong contributors adding 51 bps to performance; Pemex was one of the better performers as the market started to better reflect the Government’s commitment to support the entity and in anticipation of some further announcements of further support. The Fund’s currency positions (5% CNH, 3% JPY) contributed 1bps to performance.

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NGGBF UCITS Monthly - February 2019

  • Fund’s QDEUR hedged class gained 0.07% (net of fees)

  • US-China trade talks continue; optimism for breakthrough

  • Fed continues to emphasise a patient and flexible approach

  • US dollar index (DXY) gained 0.61%

The Fund’s Mexican holdings detracted 1bp from performance. Mexico’s President, AMLO, clarified USD5.2bn in support measures for Pemex and stated ‘We’ve taken the decision to support Pemex with everything’ and ‘We’re going to launch an initial plan, but if they require more, there will be more support’. The market’s response was muted likely reflecting Pemex’s declining production profile and a plan to make Pemex sustainable on a longer term basis still need to be addressed. The Fund’s currency positions (5% CNH, 3% JPY) contributed 2bps to performance: while the renminbi appreciated versus the US dollar helped by a more dovish outlook for US rates and better sentiment towards the US-China trade negotiations the Japanese yen detracted from performance.

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NGGBF UCITS Monthly - January 2019

  • The Fund’s QDEUR hedged class gained 2.24% (net of fees)

  • Optimism builds ahead of further US-China trade talks

  • Fed leaves interest rates unchanged and emphasises a patient and flexible approach

  • US Treasuries rallied helped by a dovish Fed; IG credit spreads tighten

  • US dollar index (DXY)  fell 0.62%

The Fund’s holdings in Abu Dhabi, Mexico, US and Qatar were the main positive contributors to performance. Greater index inclusion continues to build investor interest in and attract flows into the GCC markets: For example, JP Morgan is to include Bahrain, Kuwait, Qatar, Saudi Arabia and UAE to its Global Diversified Emerging Market Bond Index (EMBI-GD) in phases from January 31 2019. The Fund’s positions in Abu Dhabi, Qatar and Saudi Arabia contributed 102bps to performance. The Omani positions also bounced back from a rating downgrade in December to contribute 14bps to performance. The Fund’s currency positions (5% CNH, 3% JPY) contributed 8bps to performance reflecting a more dovish outlook for US rates and better sentiment towards the US-China trade negotiations.

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NGGBF UCITS Monthly - December 2018

  • The Fund’s QDEUR hedged class gained 1.67% (net of fees)

  • As expected, the Fed raised rates 25 basis points

  • USTs rally into year end and the yield curve flattened

  • US dollar index (DXY) ended the month -1.13%

The Fund’s UST positions were one of the main contributors to performance adding 46 bps during December. The Fund’s currency positions (5% CNH, 3% JPY) also contributed 15 bps to performance as both the renminbi and yen appreciated against the US dollar reflecting a more dovish outlook for US interest rate rises.

The Fund’s Qatar holdings contributed 22 bps to performance over the month.  S&P revised its outlook on Qatar to stable from negative and affirmed its long term foreign rating of AA- : they expect Qatar to ‘effectively mitigate the economic and financial fallout of the boycott’ by Saudi Arabia et al and that it will incur ‘large recurrent fiscal and external surpluses over 2018-2021’.  Qatar also announced it would withdraw from OPEC: we do not see this as escalating the impasse with Saudi Arabia et al and we see merit in the argument that Qatar is looking to focus on its gas strategy given it is the bulk of its hydrocarbon mix and it is a small oil producer with less than 2% of OPEC production.

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NGGBF UCITS Monthly - November 2018

  • The Fund’s QDEUR hedged class fell 0.43% (net of fees)

  • Signs global growth is slowing

  • USTs helped by Powell’s more dovish comments

  • DXY index ended the month +0.15%

November was another volatile month across asset markets, notably for oil with the Brent crude price falling 22.2% to end the month at USD 58.71/bbl. Key events over the month included the US midterm election results, Brexit, Italy’s ongoing budget saga, continued US-China trade tensions, Jerome Powell’s speech along with the FOMC November minutes. Signs that global growth momentum is slowing were evident in a number of data points and the OECD revised down its global growth forecast for 2019 to 3.5% from 3.7%.

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NGGBF UCITS Monthly - October 2018

  • The Fund’s QDEUR hedged class fell 2.02% (net of fees)

  • Volatile month across asset markets

  • Treasuries under pressure but helped by flight to safety

  • US Dollar Index (DXY) gained 2.1%

October proved to be a volatile month across asset markets, particularly equities with the S&P ending the month 6.9% lower and the VIX index of volatility moving into the upper part of its recent trading range. Global markets are grappling with a range of issues such as growth peaking against a backdrop of central banks tightening policy: the IMF downgraded its global growth forecast citing US-China trade tensions. Treasuries started the month on the back-foot as Jerome Powell’s comment that rates ‘may go past neutral’ unsettled investors. This was also discussed in the Fed minutes for September but was tempered by an emphasis on ‘gradual increases in the target range’.

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NGGBF UCITS Monthly - September 2018

• The Fund’s EUR QD class fell 0.08% (net of fees)

• As expected, the Fed raised rates by 25 basis points; USTs under pressure

• US-China trade tensions continued to weigh on sentiment

• Mexican and Middle East holdings perform well

Trade tensions remained a market focus as the US imposed a 10% tariff on a further USD200bn of Chinese goods until the end of 2018, rising to 25% thereafter.  Moreover, the White House threatened to impose tariffs on a further USD267bn of goods if the Chinese retaliated. China responded imposing tariffs on USD60bn of goods.

Elsewhere, trade negotiations progressed between Canada and the US and a new trilateral USMCA agreement was announced at month end to supersede NAFTA.

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NGGBF UCITS Monthly - August 2018

  • The Fund’s QDEUR Hedged class fell 0.09% (net of fees)

  • As expected, the Fed left rates unchanged; UST curve flattened

  • Mexico-US reach preliminary trade agreement, US-China trade tensions continue

  • Turkey debacle highlights the vulnerability of debtor nations

  • Middle East holdings outperform

  • US Dollar Index ended the month +0.62%

Tariffs remained an important market theme: encouragingly Mexico and the US were able to reach a preliminary bilateral trade agreement that could replace NAFTA.  Elsewhere, relations seemed more fractious with continued tariff/sanction escalation. The US imposed sanctions on Iran, ratcheted up tariffs on China as a further USD16bn of tariffs kicked in with threats of a further USD200bn.  Added to this, the US imposed additional sanctions on Russia. Meanwhile, the US-Turkey spat continued to escalate with Trump imposing sanctions and then doubling the steel and aluminium tariffs as relations deteriorated. This, coupled with a lack of confidence in Turkey’s economic policy, a backdrop of the Fed tightening and reining in US dollar liquidity, created a perfect storm for the collapse of the Turkish Lira.

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NGGBF UCITS Monthly - July 2018

  • The Funds EUR QD class gained 0.98% (net of fees)
  • Middle East holdings performed strongly
  • Trade tensions between the US and China continued to escalate
  • Fed warns of trade-related uncertainty
  • The US dollar index (DXY) edged 0.09% higher over the month

Trade continued to be an important driver of sentiment notably with the US imposing USD34bn of tariffs on Chinese imports and China imposing countermeasures.  A further USD16bn of tariffs on Chinese imports is yet to come into effect with threats of another USD200bn. Interestingly, the dialog between Mexico and the US on NAFTA took a more constructive tone while Europe and the US reached an agreement to ‘work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods’.

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NGGBF UCITS Monthly - June 2018

  • The Fund’s QDEUR hedged class fell 0.55% (net of fees)
  • Global trade tensions mounted and the US faced retaliation
  • As expected Fed raised rates 25 basis points, UST curve continued to flatten
  • US dollar index gained 0.5% over the month

Trade tensions, particularly between the US and China, weighed on market sentiment with the 6th July deadline for the US to impose USD34bn of tariffs on Chinese imports looming. Tariffs and protectionism are negative for growth and the situation risks being exacerbated as the Fed continues to tighten and rein in US dollar liquidity.

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NGGBF UCITS Monthly - May 2018

  • The Fund’s QDEUR  hedged class gained 0.27% (net of fees)
  • Geopolitical events, trade tensions and Italy’s political upheaval were main highlights
  • Treasuries rallied on risk aversion
  • The US dollar index (DXY) gained 2.33%  

May proved an eventful month as crises in Argentina, Turkey and Italy played out.  Adding to the uncertainty, the US continued with its hard-line trade policy opting to put tariffs on Chinese goods ahead of the trade discussions, NAFTA negotiations continued but a hoped for deal failed to materialise.  Trade tensions between the US and Europe escalated on disagreement over the US withdrawal from the Iran pact and the imposition of sanctions but also the announcement at month end of the removal of the US exemption of tariffs on aluminium and steel for the EU, Canada and Mexico.

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NGGBF UCITS Monthly - April 2018

  • The Fund’s QDEUR hedged class fell 2.24%
  • UST sold off on renewed inflationary concerns
  • US sanctions targeting Russian entities/individuals added to volatility
  • US dollar index (DXY) gained 2.1%

In general April was another difficult month for fixed-income markets: The yield on the 10 yr UST did push through 3% on renewed inflation concerns but recovered to 2.95% at month-end, but still higher than March’s close of 2.74%. The UST 2-10 year spread reached another new low since 2007, although it closed the month at 46 bps, close to the level it started the month at. 

Geopolitics remained a driver for markets in April: US-China trade relations took a more conciliatory tone but heightened tensions between Russia and the US resulted in the US announcing a step up in sanctions, triggering a knee-jerk sell-off across Russian assets.  However, there was some recovery into month end as the US eased the deadline to comply with the sanctions on Rusal. Ongoing US tensions with Iran supported the oil price: Brent ended the month at USD75. 

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NGGBF UCITS Monthly - March 2018

  • The Fund’s QDEUR hedged class was flat on the month
  • Tariffs concerns cause some market jitters; long-end UST curve a safe haven
  • As expected Fed raises rates by 25 basis points and UST curve flattens
  • CNH and JPY positions added to performance

In March the White House’s more aggressive trade agenda and the risk of a more hard-line foreign policy, as a number of Whitehouse staff were replaced, added to uncertainty and created some jitters across asset markets.  Notably, the appointment of Mike Pompeo as Secretary of State and John Bolton as the National Security Adviser was unsettling in terms of policy direction. Brent crude traded higher over the month closing above USD70pb helped by concerns sanction tensions with Iran could be resurrected.  President Trump also enacted tariffs on the steel and aluminium sector and then followed up with plans for tariffs targeting another USD50bn worth of Chinese exports.
Later in the month, and as expected, the Fed raised the target range for the federal funds rate by 25 basis points to 1.5-1.75%.  The updated Fed ‘dot plot’ median projection continued to look for 3 hikes this year, although it forecast a more hawkish outlook for 2019-2020.  Jerome Powell noted ‘there’s no sense in the data that we’re on the cusp of an acceleration in inflation’ and importantly inflation and wage data was benign.  The yield on 10 year UST fell 12 basis points to yield 2.74% at month end and the yield curve flattened: Fed tightening and a significant amount of UST issuance targeting the shorter-end of the curve pressured yields there and the 2y10y spread reached another low since 2007 at just under 47 basis points.  Over the month the US dollar remained on the back-foot with the DXY index falling 0.71%. 

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NGGBF UCITS Monthly - February 2018

  • The Fund’s QDEUR hedged class fell 1.97% in February
  • Volatile month across asset markets
  • S&P upgrade Russia’s long-term rating to investment grade
  • Volatility created an opportunity to add to CNH and add JPY exposure

During February the return of volatility was a key theme across asset markets.  Early in the month, the VIX topped 50 (intraday) at one point after having averaged ~12 for the past 12 months triggering an ‘acceleration event’ in many inverse-volatility products with most halting trading.  Volatility across asset markets eased somewhat in the second half of the month but a sense of nervousness prevailed.

The yield on the UST 10 year rose 16 basis points to 2.86% at month end reflecting concerns about inflation, expansion of the US budget deficit and debt position in conjunction with a heavy UST issuance schedule to absorb.  Inflation has been a concern for market participants and the stronger than expected headline January CPI figure at 2.1% yoy did not help sentiment, although we view the current uptick in inflation as transitory. By month end a build-up in short positions amidst a period of heavy UST issuance suggested a good deal of negative news has already been factored in.  The dollar (DXY Index) finally found its feet mid-month to close 1.66% higher, however, still down year-to-date.

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NGGBF UCITS Monthly - January 2018

  • The Fund’s QDEUR class fell 1.03% in January
  • Fixed income markets pressured: taper concerns, heavy UST issuance schedule
  • US Dollar weakness a key theme; CNH currency position added

Fixed income markets started the year on a weaker note. Concerns that central bank tapering may be spreading beyond the US was one factor behind this: an announcement that the BoJ would trim its purchases of longer-dated JGBs, a set of more hawkish minutes from the ECB in conjunction with a report, subsequently denied, that China may reduce UST purchases unnerved investors.  As expected the Fed left interest rates unchanged and described economic activity as rising at a ‘solid rate’, although Q4 GDP disappointed expanding at a 2.6% annualised rate.

Against this backdrop, a heavy US Treasury borrowing schedule of USD 441bn for Q1 versus USD 282bn in Q1’17 put Treasury yields under pressure.  The yield on the UST 10 year backed up 30bp to end the month at 2.71% and the UST yield curve steepened with the spread on the 2s10s increasing to 56bp from around 50bp at the start of the month.  The general weakness extended to Europe where the yield on the 10 year Bund backed up 27bp to end the month at 0.7%.  The US dollar index (DXY) weakened significantly (-3.3% MoM), notably on the back of Mnuchin’s comments at Davos.

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NGGBF UCITS Monthly - December 2017

• The Fund’s QDEUR hedged class gained 0.15%, +5.09% in 2017
• As expected the Fed raised interest rates by 25 bps
• US tax reform continues to make progress
• US Dollar index (DXY) fell 1%

The Fed raised the target range of the Federal Funds rate by 25 bps to 1.25-1.5% at the December meeting. Fixed income markets had low trading volumes and periods of softness on generally stronger economic data points, progress on tax reform and some upward revisions to US GDP growth estimates. However, an end of year rally meant the 10 year UST yield ended the month unchanged. The UST yield curve flattened taking the spread between the 2-year and 10-year benchmarks to decade lows during the month, and the spread between the 5s30s tightened to 10-year lows on the penultimate trading day. The DXY weakened ending the month 1% lower.

The Fed’s updated set of economic projections was a key focus for markets. The median projection for the Fed funds rate is unchanged looking for three 25 bps hikes in 2018 and two in 2019. Importantly, in spite of some upward revisions to the committee’s growth forecasts and reduced slack in the labour market, the committee’s median forecast for core PCE inflation was left unchanged at 1.9% for 2018 and 2% in 2019.  According to Janet Yellen, ‘most’ participants had factored in some fiscal stimulus and changes in financial conditions as progress continued to be made on US tax reform.

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