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

Riga, Latvia, August 8, 2017, 10:38 / Investments

In July, global bond market was demonstrating multidirectional movements. One of the key topics determining performance of any market was the forgotten issue of exchange rates. ECB Head Mario Draghi’s announcement at the end of June, where he in some way shocked investors with his positive comments on economic situation in Eurozone and hinted that the end of QE programme is right around the corner, caused a rather sharp growth of EUR against USD.

Despite that after another ECB meeting Draghi was not so positive and was picking words more carefully pointing that the decision regarding QE is going to be taken no sooner than in fall, and having said that also made a standard promise to increase the volume or extend the programme if it turns out that the economy or financial markets are not ready for the new stage of monetary policy, exchange market players continued the attack they had started on USD. This was fostered also by the more reserved tone of the FRS. On July’s meeting, Central Bank pointed out that inflation remains below target level of 2%, while the FRS is not expecting significant price movements in short-term perspective. As a result, the composite dollar index (weighted average USD exchange rate against key world currencies) fell 2.9% during July, and since 26 June the drop constituted 4.65%.

The situation in currency exchange market had a noticeable effect on the prevailing trends in stock markets. Among others, European stock indexes were demonstrating decelerating performance, especially German DAX, which consists mainly of export-oriented companies. Growth of EUR exchange rate lowers competitiveness of European companies, therefore among sectors suffering the most there were sectors more depending on export income, such as motor manufacturers, industrial companies and chemical sector. A substantial drop was demonstrated also by healthcare sector, yet to large extent this is due to separate companies. For example, AstraZeneca stock dropped in July by 12.6% disappointing the investors with the news of unsuccessful development of new generation cancer medications. GlaxoSmithKline stock fell 9% during the month after the new discouraging financial forecast released by the company. On the other hand, indexes of metals and mining companies grew by more than 8%. In July, iron ore price continued to recover and it had positive impact on quotations of companies of this sector. Also, among the growth leaders there was financial sector due to growth in bond yields resulting in positive impact on profitability of financial companies.

Unlike Europe, US stock market retained positive moods, and US broad market index S&P 500 reached new historical maximum in July. Investors had all the reasons for such moods: the weakening USD, reserved monetary policy of FRS, another season of good quarterly reports. Just like in Europe, sector of metal extraction and processing companies were among growth leaders. Technology sector covered the drop of previous month due to good financial performance and also continued outperforming the market. While the transportation sector was operating at a loss due to pressure caused by bad financial reports of air carriers.

Yet the main benefit of the weakening USD was gained by emerging markets. In July, MSCI EM grew by almost 5.5%, where a big role, apart from growth of stock indexes, was played by strengthening of local currencies of these markets against USD resulting in profitability of certain indexes if expressed in USD.

Markets of corporate and emerging markets bonds in July returned to reserved optimism mood. At the beginning of the month, prices of long-term bonds were still under pressure due to growth in yields of long-term German bunds and U.S. Treasuries. Yet after ECB meeting and more restrained comments by Mario Draghi, as well as more promising comments by the FRS these markets stabilised and managed to return buyers to other bond markets as well. Favourable course of events on raw materials markets such as oil and metals provided additional support to High Yield bonds, while High Grade bonds recovered along with Bunds and U.S. Treasuries. On this background, corporate and emerging markets bonds regained their losses of the end of June and demonstrated positive performance at month-end.

In July, the mutual funds under management of ABLV Asset Management demonstrated returns commensurate with market in general. In the medium term, we are still taking a relatively defensive attitude. In bond funds, a significant part of assets is invested in medium term securities enabling to decrease volatility in case of negative events on interest rates’ market. In stock funds, last month the manager conducted partial rebalancing, cutting positions in cyclical sectors in favour of more defensive ones. Also, due to increased risk of higher short-term volatility on stock markets, a share of cash was slightly increased. Further decisions will be made depending on the development of situation on the financial markets.

ABLV mutual funds’ return as at 31.07.2017

the beginning
of 2017 (YTD)
2016 20151 2014 2013 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 6,31% 6,99% 2,05% 2,75% -3,94% 5,21%
ABLV Emerging Markets EUR Bond Fund 4,76% 8,96% 2,31% 1,83% 0,92% 4,55%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 2,92% 10,36% 25,30% -16,58% 2,20% 5,48%
ABLV High Yield CIS RUB Bond Fund 5,41% 10,47% 13,78% -10,21% 7,00% 5,67%
ABLV Global Corporate USD Bond Fund 2,59% 9,32% -1,58% 0,34% - 2,98%
ABLV European Corporate EUR Bond Fund 1,33% 9,14% 1,47% 3,30% - 4,53%
ABLV Emerging Markets Corporate USD Bond Fund 4,96% 10,23% 0,09% - - 8,19%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 5,60% 3,80% -7,07% - - 0,75%
Stock Funds            
ABLV Global USD Stock Index Fund 8,79% -5,24% -6,78% -0,26% 10,24% 1,06%
ABLV Global EUR Stock Index Fund 5,98% -4,40% 0,86% 3,84% 3,26% -0,26%
ABLV US Industry USD Equity Fund 5,92% -0,27% -1,03% 6,95% - 3,95%
ABLV European Industry EUR Equity Fund 4,41% -2,78% 5,21% 2,09% - 2,52%

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.