UOB bank
15 May 2020
1. Market developments and outlook:
Risk assets moved higher in the first week of May as concerns about further deterioration in the relationship between the US and China seemed to abate, the oil market continued to convalesce, and investors seem content to look through a miserable run of economic data. The brisk rally in risk assets cooled in the second week of May, ostensibly due to concerns about a longer-than-expected recovery on the heels of COVID19 containment, following bearish commentary from the Federal Reserve Chairman Powell and California governor Gavin Newsom. Within fixed income, the US Treasury curve bull-flattened as longer-dated yields fell while investment grade credit and high yield spreads widened.
2. Performance attribution and positioning:
| As of 15 May 2020 | Portfolio Positioning | Contribution to Returns (gross in USD) | ||
| Portfolio Exposure | Market Exposure | Contribution to Duration (Years) |
Month-to-Date | Year-to-Date |
| Global Research Income | 9.1% | 0.0 | -0.3% | -1.2% |
| Global Income Low Volatility | 28.3% | 0.0 | -0.9% | -8.2% |
| Equity Hedging | -20.1% | 0.0 | 0.6% | 1.6% |
| Equity Total | 17.2% | 0.0 | -0.7% | -7.7% |
| Systematic Fixed Income | 28.8% | 3.0 | -0.3% | -0.3% |
| Government bonds | -0.6% | 0.0 | 0.0% | -0.5% |
| Systematic US Corporates | 7.4% | 0.6 | 0.0% | -0.3% |
| Cash Equivalents | 0.0% | 0.0 | 0.0% | 0.0% |
| Credit Hedging | -1.8% | 0.0 | 0.0% | -0.2% |
| Fixed Income Total | 33.8% | 3.6 | -0.3% | -1.3% |
| European Financials | 6.6% | 0.2 | 0.0% | -0.3% |
| Global Property | 4.9% | 0.0 | -0.3% | -1.0% |
| Alternatives Total | 11.5% | 0.2 | -0.3% | -1.3% |
| Total | 62.6% | 3.8 | -1.3% | -10.3% |
3. Recent portfolio positioning and key changes:
Given attractive credit spreads and continued low rates, we have been tilting the portfolio in favour of credit over global equities and duration. Within credit, we think higher-quality areas are attractive, in particular investment grade credit and cross-over credit which will benefit from the Fed’s liquidity support and should weather any recession better than lower quality fixed income. Over the last fortnight, we took the opportunity to make small adjustments to our credit allocation as markets stabilized. We added to our investment grade credit and high yield allocations, increasing duration modestly to 3.8 years, close to target levels. We have also reduced our short government bonds exposure. Within equities and alternatives, exposure moved up marginally, largely due to the systematic volatility targeting process, which continued to modestly increase exposures as volatility continues to subside. However, we continue to be defensively positioned and maintain equity exposure at close to floor levels.
All information in this publication is based upon certain assumptions and analysis of information available as at the date of the publication and reflects prevailing conditions and UOB Asset Management Ltd (“UOBAM”)’s views as of such date, all of which are subject to change at any time without notice. Although care has been taken to ensure the accuracy of information contained in this publication, UOBAM makes no representation or warranty of any kind, express, implied or statutory, and shall not be responsible or liable for the accuracy or completeness of the information.
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