Management company comment about ABLV open-end mutual funds in September

Riga, Latvia, October 7, 2015, 12:01 / Investments

September did no good for investors. Following a rapid price drop in financial markets in August that was caused by the People's Bank of China, the market stabilized and began to recover, paying most attention to another FRS meeting.

The news coming from China almost ceased to affect other markets, and new drops in Chinese securities market along with disappointing macroeconomic indicators did not cause hysterics in Europe and USA any more. Market players were awaiting the beginning of interest rate increase cycle in the USA, which was recurrently postponed. The market expected this increase in March, then in June, and September was considered an absolute deadline. It should be noted that fewer analysts expected the rate increase on 17 September because of events in August, but the probability of increase was still measured as 50/50, and therefore it should constitute no surprise. The main thing was to finally get clarity on this matter. However, reality did not meet expectations. After the meeting, the American regulatory authority not just retained the ‘veil’ of uncertainty regarding its further steps, but on the contrary, used gentle tone of voice speaking about the prospects of interest rate increase, thus surprising and puzzling the market players.

Some of major impediments mentioned at press conference were the declining growth pace of the world economy and retained low inflation rate in the USA. Such statements caused mixed response from the markets. Whereas bond market demonstrated rapid price growth, the reaction of global stock markets was opposite – nearly all major stock indexes (Japan, Europe, and USA) declined considerably on the following day, because stock investors were very displeased by statements made by Janet Yellen regarding the world economy. This could be a short-term correction and profit taking by short-term speculators (many markets nevertheless grew by 7-10% after the lows demonstrated in August), but Volkswagen came to ‘assistance’. The scandal in which the company was involved, named ‘dieselgate’, not just made its stocks tumble, but also caused a stocks slump for other European car manufacturers and companies related to this industry, which increased the pressure on all European securities markets and generated overall nervousness. Therefore, the response of market players to any negative corporate news was very tense. For example, statement made by Hillary Clinton on Twitter about the intention to introduce control on medicine prices in the USA caused a decline in pharmaceutical sector by 10% (it should be noted that Hillary Clinton is not a president yet, and it is unknown whether she will be or not). The rumours about financial difficulties of the world’s largest metals trader Glencore caused a drop not just in prices of stocks of companies operating in metals sector, but in bond prices as well. Even bonds of the largest American corporation Alcoa plummeted by 10% over a day! All this evidences the nervous situation present in financial markets. Because of all those events major stock indexes not just lost the growth achieved over the first half of the month, but also returned to August ‘lows’, showing negative result at the month-end.

All abovementioned is also true for the bond market. Although the FRS decision to retain current rate caused a short-lived surge of optimism, global events still caused sales in corporate bond markets and emerging bond markets. High Yield sector suffered the most, since it was ‘hit’ all around. The strikes were dealt by negative corporate background, high volatility in stock market, continued price decline in raw materials market, political twists and turns in a number of countries, a couple of defaults, etc. All this resulted in US HY and EUR HY spreads reaching the level of debt crisis in euro area in 2011-2012, and Q3 this year became the worst one for this bond sector since Q3 2011. The sectors of government bonds of emerging countries and corporate bond High Grade suffered less, but those also experienced strong pressure from sellers. The only ‘bright spot’ in the general picture again were the Eurobonds of Russian corporations, which not just sustained the external factors, but also demonstrated growth at the month-end.

The funds managed by ABLV Asset Management showed results close to the market ones. According to the previously adopted strategy of buying on decline, the remaining cash in stock funds was invested. In our opinion, the correction currently experienced by the market will not be prolonged, and growth will be resumed after lessening of nervousness in the markets.

Keeping strategy is maintained in bond funds, since very cautious FRS policy regarding the interest rate and remaining QE programme in Europe obviously constitute positive factors for global bond market.

Mutual funds’ return as at 30.09.2015:

the beginning
of 2015 (YTD)
2014 2013 2012 Annualised
return since
the inception
Government Bond Funds          
ABLV Emerging Markets USD Bond Fund 1,32% 2,75% -3,94% 15,63% 4,68%
ABLV Emerging Markets EUR Bond Fund 0,98% 1,83% 0,92% 15,88% 3,73%
Corporate Bond Funds          
ABLV High Yield CIS USD Bond Fund 22,76% -16,58% 2,20% 17,96% 4,84%
ABLV High Yield CIS RUB Bond Fund 19,57% -10,21% 7,00% - 5,63%
ABLV Global Corporate USD Bond Fund -2,20% 0,34% - - 0,04%
ABLV European Corporate EUR Bond Fund 1,04% 3,30% - - 2,55%
ABLV Emerging Markets Corporate USD Bond Fund - - - - -0,04%
Stock Funds          
ABLV Global USD Stock Index Fund -10,89% -0,26% 10,24% 9,33% 0,39%
ABLV Global EUR Stock Index Fund -5,40% 3,84% 3,26% 11,67% -1,25%
ABLV US Industry USD Equity Fund -7,36% 6,95% - - 1,26%
ABLV European Industry EUR Equity Fund 0,69% 2,09% - - 1,81%
Total Return Funds          
ABLV Multi-Asset Total Return USD Fund - - - - -8,25%

1 Except ABLV Multi-Asset Total Return USD Fund and ABLV Emerging Markets Corporate USD Bond Fund, for which return is calculated on funds’ period of operations.

Additional information is available at ABLV Bank home page in the section “ABLV Mutual Funds”.