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

Riga, Latvia, January 7, 2016, 17:06 / Investments

The last month of the year 2015 was a big disappointment to almost all asset investors. Contrary to the traditional Santa Claus rally, financial markets demonstrated a strongly negative return.

“Christmas sales” were initiated by the results of the European Central Bank (ECB) meeting, which did not meet the expectations of market participants. The reason is Mario Draghi, the President of the ECB, who sent out a very clear signal during the previous meeting of the ECB in October concerning regulator’s intentions to expand the programme of quantitative easing (QE) already in December, which is why November turned out to be relatively calm and new incentives were expected. However, further situation on financial markets developed rapidly and not as many desired. Although the ECB announced several additional measures for the activation of the European economy and eventually the eurozone was stimulated, it was not enough to increase investors' enthusiasm, also because the announced measures were in no way as effective as expected. Disappointment and frustrated hopes significantly changed the mood on markets, which led to the drop in prices of all financial instruments starting with German Bunds and US treasuries and ending with raw material markets.

European stock markets were hit the hardest because regulator’s policy was the main incentive for them to grow in the first half of the year as Europe’s performance on the macro- and microlevel is not as impressive as USA’s. Dissatisfaction following the ECB’s decision was so strong that European stock indexes lost approx. 10% within a week and a half only. That led to a big wave of sales on raw material markets, which resulted in sales on bond markets of emerging economies and corporate bond markets, etc. The situation distantly reminded of the events of December 2014 when the result appeared to be the same, though a reason of the drop was different. The outcome would be quite unclear if it were not for the Federal Reserve of the USA, which stepped into the breach one more time and instead of bringing negative surprises set minds at rest. Finally, everybody experienced a long-awaited event which was constantly putting pressure on financial markets, i. e. the FRS increased the rate by 0.25 percentage points. As such action was expected, it did not have a special effect. However, the statement Janet Yellen, the Chair of the Board of Governors of the Federal Reserve System, made during the press conference on the results of the meeting was well met by markets as they found confirmation of FRS’ carefulness towards further decisions on the rate taking into account economic growth and inflation. Such declamation of Janet Yellen slightly calmed down investors and consequently partly restored markets, though it was not enough to win back the losses of the first half of the month. As a result, at the end of December almost all markets demonstrated negative dynamics. The same applied to funds managed by ABLV Asset Management, which showed a yield equal to the market return.

As to the year 2015 in general, it was quite hard for investors. On one hand, financial markets were constantly experiencing the pressure caused by possible increase of the rate in the USA. On the other hand, the stimulating monetary policy of other leading countries, such as European ones and Japan, influenced investors’ mood for good. Such divergence correspondingly affected certain classes of assets. Euro-denominated bonds demonstrated a significantly higher yield compared to US dollar-denominated ones. It was especially evident in High Yield corporate sector where American index dropped by 5% while the European one almost did not change. European and Japanese stock markets, despite high volatility during the whole year and a rapid drop in December, eventually showed more or less appreciable growth (+6.8% and 9%, accordingly).

At the same time, S&P500 index almost did not change (-0.73%). The biggest disappointment provided markets of emerging economies (MSCI EM dropped by 17%). The reason behind was a negative influence of FRS’ policy, ongoing drop in prices of energy resources and metals, political instability in certain countries, as well as slowed economic growth in China and Brazil, etc. In a word, the circumstances appeared to be unfavourable. The only bright spot on the dark background, and probably one of the biggest surprises of the past year, was the Russian Eurobond market, which despite the above-mentioned negative atmosphere not only completely won all losses it experienced in 2014 but also demonstrated a positive yield in two years.

At the beginning of the year 2016, we expect the trends of the second half of the previous year to continue, as the main factors affecting markets remain the same. The situation will mostly depend on macroeconomic performance of Europe and China, which will allow to conclude if the ongoing monetary policy is effective enough. Investors will also pay their attention to quarterly reports of European and American corporations the results of which might set the pace on stock markets in the mid-term.

We are awaiting stabile prices on bond markets determined by restored liquidity of the latter. We also believe the market is heavily oversold, especially in corporative bond section of both developed and emerging countries, which is another reason for the anticipated stability. Therefore, current levels are considered attractive from risk-return point of view.

Mutual funds’ return as at 31.12.2016:

  Since
the beginning
of 2015 (YTD)1
2014 2013 2012 Annualised
return since
the inception
moment
Government Bond Funds          
ABLV Emerging Markets USD Bond Fund 2.05% 2.75% -3.94% 15.63% 4.63%
ABLV Emerging Markets EUR Bond Fund 2.31% 1.83% 0.92% 15.88% 3.78%
Corporate Bond Funds          
ABLV High Yield CIS USD Bond Fund 25.30% -16.58% 2.20% 17.96% 4.95%
ABLV High Yield CIS RUB Bond Fund 13.78% -10.21% 7.00% - 3.95%
ABLV Global Corporate USD Bond Fund -1.58% 0.34% - - 0.29%
ABLV European Corporate EUR Bond Fund 1.47% 3.30% - - 3.29%
ABLV Emerging Markets Corporate USD Bond Fund 0.09% - - - -
Stock Funds          
ABLV Global USD Stock Index Fund -6.78% -0.26% 10.24% 9.33% 0.90%
ABLV Global EUR Stock Index Fund 0.86% 3.84% 3.26% 11.67% -0.46%
ABLV US Industry USD Equity Fund -1.03% 6.95% - - 4.27%
ABLV European Industry EUR Equity Fund 5.21% 2.09% - - 3.69%
Total Return Funds          
ABLV Multi-Asset Total Return USD Fund -7.07% - - - -

1 Except ABLV Multi-Asset Total Return USD Fund and ABLV Emerging Markets Corporate USD Bond Fund, for which return is calculated since funds’ inception date.

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