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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