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

Riga, Latvia, September 8, 2016, 11:12 / Investments

August was rather calm on global financial markets. In the midst of holiday season, there was not a lot of news, and given the absence of significant events, the investors opted for a waiting attitude.

Market fluctuations (volatility) have considerably declined in comparison with previous months, and stock movements were quite small. By the end of August, wide US stock index S&P 500 remained unchanged, and major European stock indexes grew by 1-2% on average. The highest increase was demonstrated by stocks of oil producing companies against the backdrop of price stabilization on oil market. In the first half of the month, the increase in oil prices amounted to 16%, almost completely compensating the decline in July, which was facilitated by rumours about possible decrease in production quota by OPEC countries, thus supporting the market. Whereas the stocks of metals companies both in the USA and in Europe experienced the pressure made by sellers. Given another decrease in the prices of iron ore and the strong growth of this sector in previous months, the investors preferred to take profits. Healthcare and pharmaceutical sector suffered as well, as another drug pricing scandal broke out in the USA, causing concerns about future profitability of pharmaceutical companies, due to which many investors decided to sell the stocks of companies operating in this sector.

In Europe, banking sector has substantially outperformed the market. There were no apparent reasons for price growth, and therefore the increase is more likely to be of technical nature, because of the stocks of European banks being at very low level. In general, the growth pace of emerging market stocks has declined as well. Over the month, MSCI EM has gained 2.3%, mostly due to growth on the Chinese stock market, which rose by 5%.

Last month, several purchases were performed in stock funds managed by ABLV Asset Management. In the global funds, the share of emerging markets has been increased, as those demonstrate better performance than developed ones and have the potential for further growth in our opinion. In the industry funds, investments have been made in the stocks of energy, construction, and pharmaceutical sectors. The overall share of cash remains relatively high, since we continue to consider the risk of correction to be rather high, given the current absence of significant growth factors.

The markets of corporate  and emerging market bonds retained positive return in August, mostly ignoring the negative news. Oil price recovery and the decision of the Bank of England to cut the key rate by 25 bp to 0.25% and to launch small-scale QE programme (buyout of government bonds amounting to GBP 60 billion during the following 6 months) caused another surge of optimism and facilitated further price growth and narrowing of spreads in the first half of the month, following which the market entered the consolidation stage. Price upswing was slowed down by the FRS representatives making statements about the accelerating US economic growth, which sets the stage for rate increase. Market players paid particular attention to the speech given by the FRS Chair Janet Yellen at the banking conference in Jackson Hole on 26 August, expecting clearer indications regarding the US monetary policy to be provided. However, the FRS Chair, as usual, was not very specific, leaving the room for manoeuvre at future FOMC, and said that ‘the case for an increase in the federal funds rate has strengthened’, while also noting that ‘decisions always depend on the degree to which incoming data continues to confirm the committee’s outlook’. The market response to these statements was a very reserved one, pointing to the investors’ confidence that the tightening of the monetary policy will be very slow and the yield of government bonds of developed countries will remain low during a long period.

By the end of the month, all bond funds managed by ABLV Asset Management demonstrated positive returns of 1% and more.

In the short term, we expect further consolidation on the markets of corporate  and emerging market bonds, following the strong increase over the eight months this year. The overall outlook remains positive, since despite decreasing yield and narrowing spreads the bond prices and yield to maturity are still quite attractive for both long-term and mid-term investments.

Mutual funds’ return as at 31.08.2016:

the beginning
of 2016 (YTD)
20151 2014 2013 2012 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 10,72% 2,05% 2,75% -3,94% 15,63% 5,43%
ABLV Emerging Markets EUR Bond Fund 9,48% 2,31% 1,83% 0,92% 15,88% 4,54%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 9,20% 25,30% -16,58% 2,20% 17,96% 5,59%
ABLV High Yield CIS RUB Bond Fund 9,20% 13,78% -10,21% 7,00% - 5,35%
ABLV Global Corporate USD Bond Fund 10,12% -1,58% 0,34% - - 3,25%
ABLV European Corporate EUR Bond Fund 7,84% 1,47% 3,30% - - 5,02%
ABLV Emerging Markets Corporate
USD Bond Fund
9,60% 0,09% - - - 10,26%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 3,98% -7,07% - - - -2,20%
Stock Funds            
ABLV Global USD Stock Index Fund -5,79% -6,78% -0,26% 10,24% 9,33% 0,20%
ABLV Global EUR Stock Index Fund -9,67% 0,86% 3,84% 3,26% 11,67% -1,54%
ABLV US Industry USD Equity Fund -2,63% -1,03% 6,95% - - 2,27%
ABLV European Industry EUR Equity Fund -7,52% 5,21% 2,09% - - -0,01%

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”.