Management company comment about ABLV open-end mutual funds in April, 2017

Riga, Latvia, May 10, 2017, 10:14 / Investments

In April, given the absence of any news or events capable of affecting the moods of the investors, the global stock market entered the stage of consolidation after a rather strong growth in Q1 of this year. Corporate earnings reports mostly met investor expectations; macroeconomic data had no surprises as well, so the attention of the market participants was focused on the political background in Europe.

The central event to have everyone’s eyes on was presidential elections in France, and the key stock markets were demonstrating slight decrease in prices in anticipation of the results of the said elections. Although the results of the first ballot, which opened the gate to the second ballot for liberal centrist Emmanuel Macron and far-right Marine Le Pen, were the most probable, still they had some effect on the financial markets, especially European stock market, which has demonstrated rapid growth in the first days after announcement of the results. Other key stock markets had a sigh of relief and joined the general positive mood enabling the majority of stock indices to demonstrate growth for the month. STOXX Europe 600 grew by 1.6% during the month, US broad market index S&P 500 and Japanese Nikkey 225 grew by approximately 1%, while the MSCI EM rose by 2%.

Yet British market became one of the rare exceptions – here the key role was played by political events. In April, the prime minister of the United Kingdom Theresa May called for snap elections on 8th June 2017. She explained her decision with that the current government is incapable of creating a complete plan of leaving the EU in a constructive way, and therefore the new cabinet will be able to do the job more efficiently. It is believed that if conservatives win, Theresa May will manage to extend the leaving procedure deadlines and achieve better terms for the country after leaving the Union. Such announcement of the prime minister caused rapid growth of British pound exchange rate against US dollar and euro, which had negative impact on the prices of stocks of British companies resulting in country’s key stock index FTSE 100 to lose 1.6% during April.

Among sectors in Europe, stocks of the bank and financial sectors took the lead being the key beneficiaries of the lowering of the political risk in Europe. Also stocks of industrial and consumer sectors outperformed the market. In USA, growth leader of the month was telecommunications sector, which previously was falling behind the market and finally started closing the gap. The stocks of technology and healthcare sectors outperformed the the market as well. Both in Europe and USA oil and metals and mining sectors were demonstrating results that were below the market which was caused by the continuing decrease in prices of oil and metals.

Global bond market had a rather peaceful April, having low volatility, yet demonstrating certain growth of prices. The main attention of the investors was focused on the released minutes of the latest meeting of the USA FRS pointing the discussion of an idea of shrinking FRS balance sheet size which remains at record-high number of 4.5 trillion USD after various programmes were implemented for the support of banking sector and financial stimulation in response to the crisis of 2008. Shrinking the FRS balance sheet, as well as increasing the interest rate are the instruments for tightening of monetary policy aimed on prevention of economy overheating. Yet taking into account major uncertainty regarding how and in what way FRS balance sheet will be shrunk, market participants had some questions about the perspectives of increasing the interest rate. While market is generally counting on the two increases this year, it is not clear what will happen next when the process of shrinking the balance sheet starts, and whether it will require further increase of the interest rate. Looking at the results of 100 days of Mr. Trump’s office, no major progress in any of the topics of pre-election promises is seen. Even the details of the upcoming tax reform presented to the public were not quite thorough enough, which disappointed the investors. Such uncertainty contributed to the stability of US Treasuries on the market having positive impact on corporate and emerging markets bonds. The general optimistic mood after the first ballot of French presidential elections had positive effect on the cost of the majority of risky assets and contributed to the price growth in High Yield bonds segment, which noticeably outran the High Grade bonds. And even the elevated geopolitical tension (USA’s missile strikes on a Syrian airfield and military threats of North Korean leader) and the negative performance of the commodities markets did not change the current trends.

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 manager is taking tactic actions to partially fix profits in certain positions and to increase share in other ones.

ABLV mutual funds’ return as at 30.04.2017

the beginning
of 2017 (YTD)
2016 20151 2014 2013 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 4,91% 6,99% 2,05% 2,75% -3,94% 5,20%
ABLV Emerging Markets EUR Bond Fund 3,57% 8,96% 2,31% 1,83% 0,92% 4,55%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 2,91% 10,36% 25,30% -16,58% 2,20% 5,62%
ABLV High Yield CIS RUB Bond Fund 1,56% 10,47% 13,78% -10,21% 7,00% 5,20%
ABLV Global Corporate USD Bond Fund 1,73% 9,32% -1,58% 0,34% - 2,95%
ABLV European Corporate EUR Bond Fund 0,69% 9,14% 1,47% 3,30% - 4,66%
ABLV Emerging Markets Corporate USD Bond Fund 4,10% 10,23% 0,09% - - 8,97%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 4,56% 3,80% -7,07% - - 0,39%
Stock Funds            
ABLV Global USD Stock Index Fund 6,72% -5,24% -6,78% -0,26% 10,24% 0,90%
ABLV Global EUR Stock Index Fund 6,66% -4,40% 0,86% 3,84% 3,26% -0,20%
ABLV US Industry USD Equity Fund 3,87% -0,27% -1,03% 6,95% - 3,66%
ABLV European Industry EUR Equity Fund 6,88% -2,78% 5,21% 2,09% - 3,39%

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

General information on ABLV mutual funds and management company ABLV Asset Management, IPAS, as well as all additional information can be found on ABLV Bank home page in the section “ABLV Mutual Funds”.

Public information about the Funds is available on the Exchange Nasdaq Riga:

This comment is intended exclusively for informative purposes and cannot be considered as an investment recommendation or advice.