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

Riga, Latvia, December 7, 2017, 11:19 / Banking

In November, global stock markets demonstrated varying movements. Following vigorous stock growth in Europe during the last two months, the investors apparently decided to take profits, and in November major European capital market indexes showed negative returns: broad market index Euro Stoxx 600 declined by slightly more than 2%. In the absence of obviously bad news, the drop can be attributed to the correction following the strong growth and to the response to the strengthening of the euro, which is disadvantageous for European exporters.

In turn, the US stock market set new records of index values. The US broad market index S&P 500 has grown by 2.8% over the month, and the index of the largest industrial companies Dow Jones Industrial surged by 3.8%. The players’ interest to the American market was possibly fuelled by positive expectations regarding the tax reform initiated and consistently promoted by Donald Trump. Although the reform success is not obvious, it is progressing, and investors gradually begin modelling the scenarios: how much the income of the US corporations will grow if the tax burden is reduced as planned. In November, current head of the FRS Janet Yellen was announced to be replaced by Jerome Powell. This brought some positive to the financial markets as well, since Powell is the supporter of more gradual interest rate increase, compared with other candidates, which is more preferable for the stock market.

The results of the companies in Q3 appeared to be quite decent. The strongest performance was demonstrated by Japanese companies, as their profits grew by 16% year-on-year. In Europe, the companies’ profits increased by 9%, and in the USA — by 6%. It is also important that 76% of the US corporations demonstrated the profits exceeding the analysts’ expectations. In Europe, the figures estimated by analysts were surpassed by slightly more than a half of the companies.

On the US stock market in November, best performance was demonstrated by defensive sectors: the growth leaders were the stocks of retail companies, which is possibly due to strong expectations of good sales during ‘Black Friday’. The stocks of transportation companies were among the growth leaders as well, alongside with home construction, financial, and healthcare sectors.

In Europe, defensive sectors — utility companies, food manufacturers, and retail — outperformed the market as well. Whereas the sector of technology companies underperformed the market in both the US and Europe. Since technology stocks have grown by more than 30% since the beginning of the year, it is quite natural for the investors to fix some profits.

By the end of the month, the equity funds managed by ABLV Asset Management demonstrated the return similar to the overall market performance. In the middle term, we expect current trends to be maintained, and therefore, given the expected continuation of moderate growth of the capital market indexes, low portion of cash is retained in the equity funds.

On the market of corporate and emerging markets bonds, major factors determining the behaviour of the market players were the US Treasuries and Bunds yield movements and the developments on stock and commodity market. Venezuela’s announcement of intention to restructure all debts actually was an acknowledgement of inability to handle the immense debt burden, given the current oil prices. This was not totally unexpected, quite opposite, the investors realized that this was bound to happen sooner or later (bonds of Venezuela in ABLV Emerging Markets USD Bond Fund were sold 1.5 years ago), and therefore no strong negative impact on the general market was made.

Stabilization on the markets of the US Treasuries and Bunds, following the volatility surge in previous month, boosted the comeback of the buyers of investment-grade bonds, and the continued growth of oil prices maintained the increased investors’ interest for emerging markets bonds. Whereas the segment of high-yield corporate bonds experienced the pressure because of volatility on stock markets. At the month-end, the funds of government bonds of emerging markets managed by ABLV Asset Management demonstrated an increase in share value by 0.5-0.6%, and corporate bond funds showed a slight decrease, following the market trends.

In the medium term, we keep to moderately conservative position. In the bond funds, large investments are made in mid-term securities, which enable lower volatility in case of negative developments on the interest rate markets. Moreover, some long-term bond positions in ABLV Emerging Markets USD Bond Fund were reduced in order to decrease the overall average duration of the fund.  

ABLV mutual funds’ return as at 30.11.2017

the beginning
of 2017
2016 20151 2014 2013 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 8,46% 6,99% 2,05% 2,75% -3,94% 5,24%
ABLV Emerging Markets EUR Bond Fund 8,17% 8,96% 2,31% 1,83% 0,92% 4,72%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 5,27% 10,36% 25,30% -16,58% 2,20% 5,53%
ABLV Global Corporate USD Bond Fund 3,20% 9,32% -1,58% 0,34% - 2,89%
ABLV European Corporate EUR Bond Fund 3,00% 9,14% 1,47% 3,30% - 4,56%
ABLV Emerging Markets Corporate USD Bond Fund 7,17% 10,23% 0,09% - - 7,92%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 7,74% 3,80% -7,07% - - 1,39%
Stock Funds            
ABLV Global USD Stock Index Fund 14,18% -5,24% -6,78% -0,26% 10,24% 1,49%
ABLV Global EUR Stock Index Fund 10,66% -4,40% 0,86% 3,84% 3,26% 0,17%
ABLV US Industry USD Equity Fund 12,67% -0,27% -1,03% 6,95% - 5,20%
ABLV European Industry EUR Equity Fund 6,70% -2,78% 5,21% 2,09% - 2,86%

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.