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

Riga, Latvia, April 7, 2017, 10:32 / Investments

In March, the global stock market retained positive moods, yet investors have become more selective, while the stock markets of various states and regions have lost their lockstep. If those were American stock indices that set the tone in February, then in March the European markets took over the lead. STOXX Europe 600 index grew by 2.94% within a month, while American S&P 500 stayed where it was, and the Japanese market lost more than 1%.

Europe’s mood still primarily depends on political events. Even though all eyes are on the French presidential race, parliament elections in Netherlands held in the middle of March drew attention of large audience, too, due to that a party famous for criticising European Union was among the leaders in this race. After Brexit voting results, investors are following the elections in all European countries much closer, fearing the formation of the new trend of “independence” brought up by the United Kingdom. Elections in Netherlands resulted in victory of the ruling party, i.e. preserving political stability letting the players on the exchange sigh in relief. Still, the political background in Europe continues affecting the moods of investors on European stock markets, since later in April (and most likely it is going to take two rounds, the second of which will be in May) presidential elections are taking place in France. One of the candidates is Marine Le Pen, who is famous for her high scepticism regarding the future of European Union. And despite that according to the latest polls Le Pen’s chances to outrun the major presidential candidate Emmanuel Macron are very low, some concerns about the possibility of another surprise remain.

Apart from nervous moods in political background, the atmosphere in the news of economy contributed to retaining modest optimism in investors due to a variety of reasons. One by one analysts started improving profit forecasts for European companies; economic data start demonstrating improvement of macroeconomic situation in the region. For example, index of business activity both in manufacturing and services sectors reached the peak of 2010 and signals about economic growth in Eurozone. Level of consumer inflation has not gone far from the target level set by ECB, while producer-price inflation is demonstrating rapid growth, whereas ECB maintains a monetary policy comfortable for the financial markets. Such positivism in the general moods helped European markets to start closing the gap between them and the American companies being far ahead in their price.

American stock market took a pause after the massive growth wave that we saw in previous months. The main ideas for growth are used up, so the focus of attention of the players is back on the current activities of the president of the USA, namely on Donald Trump’s ability to pull his initiatives through the Congress. And here the first questions arise. The first important initiative – health care reform that should have replaced the famous Obamacare – wasn’t ratified by the Congress due to the existing disagreements. Now Mr. Trump has promised to go to the second campaign promise – the tax reform. Apparently, this is going to be the ultimate test of his chances to launch the promised fiscal stimulus.

Among the sectors, both in Europe and the USA, stocks of technology sector took the lead. Also, the banking sector stockshas outperformed the general market in Europe despite another decrease of yield on government bonds, which usually leads to drop of prices of stock of financial companies whose profits a strongly dependant on the interest rates. A bright example to mention here is the financial sector of the USA, which decreased by 3% within a month and ended up among the weakest sectors. Oil and metals and mining sectors underperformed the market both in Europe and the USA due to an ongoing correction of commodities prices.

Global bond market had a relatively peaceful month remaining in consolidation stage. The month started with a certain pressure caused by the representatives of FRS whose compliments to the condition of US economy gave verbal grounds for increase of interest rate. The emphasis was put on good labour market condition, inflation growth and lower external risks. Data on labour market in February proved it by demonstrating increase in non-farm payrolls above forecast and decrease of unemployment from 4.8% to 4.7%. Given these figures, the market estimate of probability of interest rate increase reached 100% already in March triggering growth of US treasuries yields. Expectations were met – on 15 March, the FRS raised the rate by 25 bp, which is now the third increase since the beginning of the cycle in December 2015.

However, right after 15 March US treasuries yields demonstrated decrease caused by the comments of the Chair of FRS Janet Yellen at the press conference which were too mild, pointing that the pace of the rate increase shall remain “gradual”. Apparently, the FRS yet has no certain expectations regarding probable impact of potential stimulus in Trump’s policy on the economy of the United States. This narrative of the FRS fuelled recovery of emerging markets bond prices, helping the respective mutual funds under management of ABLV Asset Management demonstrate positive return. In turn, the dynamics of US and Eurozone corporate bond mutual funds demonstrates lagging behind since they had not enough time to fully compensate losses incurred in the beginning of the month.

In the medium term, we take waiting attitude. In the bond funds, considerable amount of assets is invested in medium-term securities, which we believe to be the most secured against higher price fluctuations during rate increases and to ensure rather attractive return at the same time. In the stock mutual funds, the fund managers are taking tactic actions to partially fix return in certain positions and to increase share in other ones.

Mutual funds’ return as at 31.03.2017:

the beginning
of 2017
2016 20151 2014 2013 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 3,68% 6,99% 2,05% 2,75% -3,94% 5,12%
ABLV Emerging Markets EUR Bond Fund 2,88% 8,96% 2,31% 1,83% 0,92% 4,51%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 2,45% 10,36% 25,30% -16,58% 2,20% 5,62%
ABLV High Yield CIS RUB Bond Fund 3,11% 10,47% 13,78% -10,21% 7,00% 5,59%
ABLV Global Corporate USD Bond Fund 0,65% 9,32% -1,58% 0,34% - 2,73%
ABLV European Corporate EUR Bond Fund -0,15% 9,14% 1,47% 3,30% - 4,53%
ABLV Emerging Markets Corporate USD Bond Fund 2,93% 10,23% 0,09% - - 8,67%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 3,71% 3,80% -7,07% - - 0,02%
Stock Funds            
ABLV Global USD Stock Index Fund 5,48% -5,24% -6,78% -0,26% 10,24% 0,78%
ABLV Global EUR Stock Index Fund 5,83% -4,40% 0,86% 3,84% 3,26% -0,28%
ABLV US Industry USD Equity Fund 3,35% -0,27% -1,03% 6,95% - 3,59%
ABLV European Industry EUR Equity Fund 5,46% -2,78% 5,21% 2,09% - 3,07%

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”.