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

Riga, Latvia, January 8, 2018, 10:50 / Investments

This year, December fell short of investors’ expectations for serious global “Christmas rally” and the key global stock markets closed the last month of the year mixed. The majority of European market indexes closed the month negative (for example, the Germany’s main stock index DAX fell by 0.8% and French CAC 40 – by 1.1%), while US market continued conquering new peaks (S&P 500 grew by almost 1% by the end of the month, while Dow Jones Industrial grew by 1.8%).

It is not that the overall news background in Europe was negative; on the contrary, economic numbers released in December were still suggesting that recovery of European economy continues. ECB meeting also did not bring any causes for worries – Central Bank of euro area is ready to continue low rates policy for a longer period of time until complete recovery of economy growth and inflation, and assured once again of its readiness to continue quantitative easing programme if necessary. Given that, stronger euro seems to be the main reason of European market’s stagnation, which is not good for the European exporters and makes investors nervous. This statement can be supported by that broad market index STOXX Europe 600 by the end of the month grew by 0.6%, the key reason for which was the growth of stocks of UK and mid-cap companies, which are more oriented on domestic market and less dependent on euro exchange rate. Moreover, to certain extent it even is an advantage for them. Additionally, UK finally made some serious progress in Brexit negotiations, which, in addition to rather good macro reports, contributed to optimism of the market participants.

In USA, optimism still prevailed, and this time it was based on the long-awaited approval of tax reform that step by step has been making its way through various institutions for several months. The final version of the bill states that corporate profit tax will be lowered to 21% (current rate is 35%), and individuals’ income tax will also be lower. Theoretically, it will help increase country’s GDP growth by several tenths of percent and increase growth of profits of companies in certain economy sectors. The FRS meeting that took place in December ended up with increasing the base rate in USA just as it was expected, whereas Janet Yellen’s comments did not have any significant influence on the current expectations regarding three rate increases in 2018.

Sectoral performance in European and US stock markets was very similar. Among leaders there were companies related to commodities – oil and gas and metals and mining. Both of the sectors grew due to increase of prices of commodities caused by disrupted oil supplies and inventory reduction, as well as good reports on industrial activity of China – the world’s leading consumer of metals. Also, among top performers there was consumer sector and retail. Much weaker than the market were so called bond proxies – telecommunication and utility companies. Such companies have low income growth, yet they pay rather high dividends, which makes them an alternative option for fixed income financial instruments. Growth of yields on government bonds that was being observed both in Europe and US in December had negative impact on of these stocks. Technology and healthcare sector companies looked weak as well. The tax reform in USA will have a very little impact on the profits of technology companies, and taking into consideration that this sector was the one to show a more significant growth compared to the general market last year probably many investors have decided to fix partially the profit and reallocate cash in favour of other sectors.

Corporate and emerging markets bonds spent December rather peacefully. The key factors defining the behaviour of the market participants was still the performance of US Treasuries and Bunds, and the events unfolding on stock and commodity markets. Growth of yields on the markets of US Treasuries and Bunds was having a certain pressure on Investment Grade segment, while the general optimism on the commodity and stock markets was maintaining increased demand on High Yield bonds by the investors, primarily on emerging markets bonds. Corporate bonds of developed markets was demonstrating a weaker performance. List of corporate bond indexes plunged to record-low levels of spreads (risk premiums), which caused an insignificant price correction on the market.

In the medium term, we are still taking moderately conservative 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 Europe-oriented stock funds, a rather high share of cash is being retained due to the current weakness of the region. At the same time, we expect moderate growth to continue on the global stock market, therefore weight of cash in these funds is rather small.

Evaluating the general performance in 2017, one can claim that it was a good year for the investors. All funds under management of ABLV Asset Management demonstrate rather good return. Given that the situation on the markets during the year wasn’t always certain, both stock and bond fund managers were mainly sticking to moderately conservative strategy aiming to lower the risks. Despite that bond funds demonstrated share price growth by 3–9% and stock funds – by 7­–15% which complies with our long-term target rate of return.  

ABLV mutual funds’ return as at 31.12.2017

the beginning
of 2017
2016 20151 2014 2013 Annualised
return since
the inception
Government Bond Funds          
ABLV Emerging Markets USD Bond Fund 8,92% 6,99% 2,05% 2,75% -3,94% 5,24%
ABLV Emerging Markets EUR Bond Fund 9,28% 8,96% 2,31% 1,83% 0,92% 4,79%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 5,53% 10,36% 25,30% -16,58% 2,20% 5,50%
ABLV Global Corporate USD Bond Fund 3,29% 9,32% -1,58% 0,34% - 2,85%
ABLV European Corporate EUR Bond Fund 2,92% 9,14% 1,47% 3,30% - 4,46%
ABLV Emerging Markets Corporate USD Bond Fund 7,51% 10,23% 0,09% - - 7,77%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund 8,03% 3,80% -7,07% - - 1,44%
Stock Funds            
ABLV Global USD Stock Index Fund 15,38% -5,24% -6,78% -0,26% 10,24% 1,58%
ABLV Global EUR Stock Index Fund 10,22% -4,40% 0,86% 3,84% 3,26% 0,13%
ABLV US Industry USD Equity Fund 14,01% -0,27% -1,03% 6,95% - 5,40%
ABLV European Industry EUR Equity Fund 6,96% -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.