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

Riga, Latvia, May 9, 2016, 10:23 / Investments

In April, the global stock market took a little time off after quite good growth in March. Market participants again focused on the actions of central banks and corporate reports. Nothing specific was expected from the FRS or ECB, nevertheless, everybody was interested in the declamations of the heads of the central banks regarding the further monetary policy. The ECB highlighted the slight improvement of forecast of economic performance in the Eurozone and confirmed the will to use “all instruments”, if necessary, in order to achieve the target rate of inflation.

Janet Yellen, the Chair of the FRS, in her turn, pointed to the decrease of worries regarding the condition of global financial markets; at the same time she noted the FRS will not hurry to increase the interest rate again and will keep following the situation in the global economy and US economy.

The market was rather disappointed by the meeting of the Bank of Japan, from which additional easing of the monetary policy was expected. However, the Bank of Japan refrained from any new actions, which led to sudden appreciation of the yen and very negative impact on the Japanese capital market which plummeted by almost 7% in two days only.

April opened another season of corporate reports. At the end of the month, in the USA their reports submitted more than one third of the companies represented in S&P 500. Among them, approximately 80% reported profit exceeding the expectations, though this “surprise” was not very significant; in average, the profits lowered by 8%. In Europe, their reports submitted around one third of companies represented in Euro Stoxx 600, only the half of which demonstrated profit exceeding expectations. In average, profits dropped by 18%. The reporting season will last for a while, but the results of companies in general do not impress, which was another reason for consolidation on major stock markets.

April became another “green” month for oil, which continued its rally by showing a growth of 20%. At the beginning of the month, the market laid its hopes on the meeting of the major oil producers, which took place in Doha on 17 April. However, the representatives of 16 member states could not reach an agreement; therefore, the meeting was considered fruitless. However, this did not prevent from ongoing growth as investors focused their attention on more positive statistics of the US Department of Energy regarding the stocks and data on higher demand for oil in China. The positive dynamics of oil quotes contributed to the increase of prices for other classes of assets influenced by the trends on the raw materials market. The increase of prices on commodities exchange made shares of the companies operating in the raw materials segment and capital market indexes of emerging countries exporters of energy resources the leaders of growth (the shares of the companies operating in the raw materials segment grew from 10% to 20% during the month).

In general, the key capital market indexes practically did not change at the end of the month. The equity funds managed by ABLV Asset Management, IPAS demonstrated the similar dynamics.

Corporate bond markets and bond markets of emerging countries were consistently growing during the month, which was due to the scope of fundamental and market factors. First of all, the loyal position of the US Federal Reserve regarding the rates of the increase of the interest rate influenced investors’ attitude towards currencies of the emerging markets, which led to the redistribution of capital to the emerging markets. Then, it was also the policy of the ECB, which is lately aimed at the active stimulation of the economy and low rates. Last but not least, the upward dynamics of prices on raw materials markets contributed to higher demand for bonds of countries exporting energy resources, which hold a significant part in the general structure of the market. All these factors brought investors’ interest back to the market of corporate bonds and bonds of emerging countries, which had been demonstrating downward trends for a long time (1.5–2 years).

At the end of the month, all bond funds managed by ABLV Asset Management showed yield from 1% to 2%, while the increase of value of bond fund units from the beginning of the year was 5–6%.

In the short-term, we do not exclude corrections on share markets and markets of corporate bonds and bonds of emerging countries upon rather good increase in the previous 2.5 months. Therefore, bond funds partly demonstrated return on the most volatile bonds with high duration, which allowed decreasing the total duration of portfolios and increasing the amount of funds for lowering the volatility of fund portfolios. Nevertheless, the overall evaluation of markets of corporate bonds and bonds of emerging countries in the middle-term remains positive, as regardless of lower yields and narrowing of the spread they still remain on rather high levels, which allows forecasting that the market will keep generally positive dynamics.

In stock funds, there is still a large portion of funds, as the risk of correction in the current situation, in our opinion, remains high; therefore, the positions are to be restored on more attractive levels.

Mutual funds’ return as at 30.04.2016:

the beginning
of 2016 (YTD)
20151 2014 2013 2012 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 5,43% 2,05% 2,75% -3,94% 15,63% 5,07%
ABLV Emerging Markets EUR Bond Fund 4,28% 2,31% 1,83% 0,92% 15,88% 4,13%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 5,38% 25,30% -16,58% 2,20% 17,96% 5,38%
ABLV High Yield CIS RUB Bond Fund 5,74% 13,78% -10,21% 7,00% - 5,00%
ABLV Global Corporate USD Bond Fund 6,10% -1,58% 0,34% - - 2,31%
ABLV European Corporate EUR Bond Fund 4,33% 1,47% 3,30% - - 4,42%
ABLV Emerging Markets Corporate USD Bond Fund 5,39% 0,09% - - - 9,12%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 2,74% -7,07% - - - -5,33%
Stock Funds            
ABLV Global USD Stock Index Fund -7,65% -6,78% -0,26% 10,24% 9,33% -0,01%
ABLV Global EUR Stock Index Fund -11,05% 0,86% 3,84% 3,26% 11,67% -1,77%
ABLV US Industry USD Equity Fund -5,30% -1,03% 6,95% - - 1,44%
ABLV European Industry EUR Equity Fund -8,47% 5,21% 2,09% - - -0,42%

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”.