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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