Fund

AXIOMA’s Fixed Income Fund means the maximum total return still consistent with preservation of capital and prudent investment management.

AXIOMA’s Fixed Income Fund means the maximum total return still consistent with preservation of capital and prudent investment management.

Performance

February 2018
  • Growth of $100 investment, rhs
  • Quarterly return, 1hs

Period

Performance*, per period * The percentage of Not Rated bonds as of 29.12.2017 is 0.8%

Historical volatility5.0% p.a.
3M0.9%
YTD10.3%
201613.9%
2015**** Gross average performance of USD accounts is being used up to 30.11.2015. The underlying strategy was launched on 01.01.2009. As of 29.12.2017 historical performance of the strategy is 14.4% p.a. with volatility at 11.3% p.a.10.4%
Since inception10.6% p.a.
Period
Performance*, per period * The percentage of Not Rated bonds as of 29.12.2017 is 0.8%
3M
0.9%
YTD
10.3%
2016
13.9%
2015**** Gross average performance of USD accounts is being used up to 30.11.2015. The underlying strategy was launched on 01.01.2009. As of 29.12.2017 historical performance of the strategy is 14.4% p.a. with volatility at 11.3% p.a.
10.4%
Since inception
10.6% p.a.

Investment objective

The investment objective of the Fund is to generate attractive risk-adjusted return under prudent investment management with the aim of exploiting inefficiencies in fixed income markets worldwide.

The investment objective of the Fund is to generate attractive risk-adjusted return under prudent investment management with the aim of exploiting inefficiencies in fixed income markets worldwide.

Top 5 holdings Rating Weight
Cash/leverage 9.1%

VimpelCom 5.95%

02/13/23

BB 2.1%

Lukoil 4.563%

04/24/23

BBB 1.8%

Mobile Telesystems OJSC 5%

05/30/23

BB+ 1.8%

Novolipetsk Steel 4%

09/21/24

BBB- 1.6%

El Puerto de Liverpool 3.875%

10/06/26

BBB+ 1.3%

Allocation February 2018

15% Russia

13% Asia Pacific

3% CIS

10% North America

31% Latin America

7% Developed Europe

15% Middle East / Africa

6% Emerging Europe

Fund details February 2018

AuM $83’187’857.71
ISIN (B2) KYG0750S1378
Currency USD
Type Fixed Income, open-ended
Coupons Reinvested
Credit risk Low (average Fund’s credit rating BB+ -BBB)
Leverage 0-100%
Management fee 0.75% p.a.
Performance fee 15%, HWM
Launch date November 27, 2015
Incorporation Cayman Islands
Investment manager AXIOMA Wealth Management AG (Switzerland)
Custodian/prime-broker Credit Suisse AG (BBB+) (Switzerland)
Administrator Apex Fund Services (Malta)
Valuation Monthly
Minimum subscription $100’000
Subscription/Redemption Monthly, 5 BD notice
Target return 6-8% p.a.

Commentary

February 2018

In December, the Fund saw additional growth of 0.38%, which allowed us to end 2017 with a double-digit performance (+10.25%). In the middle of the month, key commodity prices (oil, copper) resumed growth, stoking risk appetite that in turn brought about a resurgence of market optimism. On 13 December, the Fed hiked its interest rate by 25 b.p. to 1.5%, which had been fully priced in by the market. The US inflation is not showing any signs of growth despite decreasing unemployment, which causes short (1–5 years) US Treasuries yields to keep increasing, medium US Treasuries (10 years) – to stagnate, while the long ones (30 years) – to decline. There is no consensus among analysts as to further inflation trend. The market has split into two camps: one side argues that 2018 will bring an upsurge in US inflation and hence a rise in long-term bond yields on the back of the tax reform, higher supply of government debt instruments to finance infrastructure spending, and materialised cumulative impact of low unemployment. Their opponents rebut by explaining low inflation with the “Amazon effect” and ultimately negligible impact of tax initiatives, given their scale and timelines. As for us, we think that the truth is somewhere in the middle, so our forecast includes the assumption of a small rise in inflation and, consequently, US Treasury yields. Moving on to EM, South Africa took centre stage with a wave of optimism around a new president. Jacob Zuma, who has served as the President of South Africa since 2009, agreed to hand over the reins to Cyril Ramaphosa, member of the same party (African National Congress). Mr Zuma was known for frequent Cabinet reshuffles, as well as multiple corruption charges that he denied, so the market welcomed the transition of power. For example, the South African rand firmed by 9.5%, enjoying lows last seen in mid-2015. The prices of South African corporate bonds also increased after facing pressure in 2017 triggered by the president’s controversial actions. Based on the widened credit spreads, we made the decision to build up our South African bond allocation to 6.5% during 2017 from nearly 0% in 2016. In December, portfolio managers took part in the primary placement of the Indian Rural Electrification Corporation (ВВВ-), which issued 3-year bonds with the yield of 3.068%. This is a state-owned company that finances and promotes projects in India’s power sector. The Fund also purchased the bonds of YPF (В/В+), an Argentinian oil and gas company, with the yield of 6% to maturity in 2027. It is a state-run company that focuses on projects in oil and gas sector, petrochemicals, and supply and sales of crude oil and oil products. It has a comfortable leverage (Net Debt / EBITDA – 2.1x in 2017F) that it plans to maintain. The company’s credit metrics hint at a higher rating, but it is capped by the sovereign rating (В/В+ for Argentina). The year of 2017 proved quite favourable for bond markets as a whole and for our Fund in particular. We welcomed the new year with the Fund’s total return of 10.25%, which is more than double its coupon component. We believe that 2018 will be also rich for opportunities, which we intend to use to deliver great performance to you!

In December, the Fund saw additional growth of 0.38%, which allowed us to end 2017 with a double-digit performance (+10.25%). In the middle of the month, key commodity prices (oil, copper) resumed growth, stoking risk appetite that in turn brought about a resurgence of market optimism. On 13 December, the Fed hiked its interest rate by 25 b.p. to 1.5%, which had been fully priced in by the market. The US inflation is not showing any signs of growth despite decreasing unemployment, which causes short (1–5 years) US Treasuries yields to keep increasing, medium US Treasuries (10 years) – to stagnate, while the long ones (30 years) – to decline. There is no consensus among analysts as to further inflation trend. The market has split into two camps: one side argues that 2018 will bring an upsurge in US inflation and hence a rise in long-term bond yields on the back of the tax reform, higher supply of government debt instruments to finance infrastructure spending, and materialised cumulative impact of low unemployment. Their opponents rebut by explaining low inflation with the “Amazon effect” and ultimately negligible impact of tax initiatives, given their scale and timelines. As for us, we think that the truth is somewhere in the middle, so our forecast includes the assumption of a small rise in inflation and, consequently, US Treasury yields. Moving on to EM, South Africa took centre stage with a wave of optimism around a new president. Jacob Zuma, who has served as the President of South Africa since 2009, agreed to hand over the reins to Cyril Ramaphosa, member of the same party (African National Congress). Mr Zuma was known for frequent Cabinet reshuffles, as well as multiple corruption charges that he denied, so the market welcomed the transition of power. For example, the South African rand firmed by 9.5%, enjoying lows last seen in mid-2015. The prices of South African corporate bonds also increased after facing pressure in 2017 triggered by the president’s controversial actions. Based on the widened credit spreads, we made the decision to build up our South African bond allocation to 6.5% during 2017 from nearly 0% in 2016. In December, portfolio managers took part in the primary placement of the Indian Rural Electrification Corporation (ВВВ-), which issued 3-year bonds with the yield of 3.068%. This is a state-owned company that finances and promotes projects in India’s power sector. The Fund also purchased the bonds of YPF (В/В+), an Argentinian oil and gas company, with the yield of 6% to maturity in 2027. It is a state-run company that focuses on projects in oil and gas sector, petrochemicals, and supply and sales of crude oil and oil products. It has a comfortable leverage (Net Debt / EBITDA – 2.1x in 2017F) that it plans to maintain. The company’s credit metrics hint at a higher rating, but it is capped by the sovereign rating (В/В+ for Argentina). The year of 2017 proved quite favourable for bond markets as a whole and for our Fund in particular. We welcomed the new year with the Fund’s total return of 10.25%, which is more than double its coupon component. We believe that 2018 will be also rich for opportunities, which we intend to use to deliver great performance to you!