UOB bank
30 April 2020
1. Market developments and outlook:
Risk markets have continued to rally since the middle of the month (though some gains have been given up in early April). More recently, emerging markets have generally outperformed developed markets, while oil has also moved higher following an incrementally less-bearish inventory build in the US and growing hopes for a recovery in demand, as more economies exit lock-down. Within fixed income, spreads for US investment grade corporate bonds tightened modestly, while global sovereign yields generally rallied with the exception of US. Economic data released during the past week continues to suggest a brutal impact on global activity from COVID-19 containment. Geopolitical risk has also increased as President Trump aims criticism at Chinese authorities, alleging the spread of COIVD19 started in a Wuhan laboratory and threatening retaliatory tariffs.
There is a great deal of consensus amongst economists (including our macro strategists) that we will have a big recession. As a contrast, markets have been optimistic recently and have rallied quite a bit since the lows seen in late March. Our base case is that central bank and fiscal activity will soften the economic blow but cannot remove it and we may likely see another leg down in markets. During this period we intend to remain conservatively positioned to help preserve client capital and our defensive posture seen below (Section 2) should be beneficial in mitigating the worst of any further weakness. Conversely, if we do gain better visibility into the impact of the crisis, see some stability in global infections, and markets stabilise, our investment process should also adapt quickly. Due to the extent of monetary and fiscal support currently being provided by governments and central banks, the recovery in financial markets when it arrives, is expected to be swift and steep – even if the real economy takes a little longer. It is worth highlighting the highly dynamic nature of UIFT. Similar to the rapid reduction in risk as the crisis grew, we can equally re-risk as the crisis shows signs of receding.
2. Performance attribution and positioning:
| As of 30 April 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 | 9.3% | 0.0 | 0.7% | -0.8% |
| Global Income Low Volatility | 28.1% | 0.0 | 2.4% | -7.3% |
| Equity Hedging | -20.4% | 0.0 | -2.0% | 1.1% |
| Equity Total | 17.0% | 0.0 | 1.2% | -7.1% |
| Systematic Fixed Income | 30.9% | 3.3 | 2.0% | 0.1% |
| Government bonds | -3.5% | -0.4 | -0.1% | -0.6% |
| Systematic US Corporates | 7.4% | 0.6 | 0.4% | -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 | 33.0% | 3.4 | 2.3% | -1.0% |
| European Financials | 6.7% | 0.2 | 0.4% | -0.3% |
| Global Property | 5.1% | 0.0 | 0.4% | -0.7% |
| Alternatives Total | 11.8% | 0.2 | -0.8% | -1.0% |
| Total | 61.8% | 3.7 | 4.3% | -9.1% |
3. Recent portfolio positioning and key changes:
In terms of positioning, there have been no material changes over the past fortnight. As noted previously, our equity exposures (including Global Property) have moved up slightly from their lows of 17% as of late March to ~22% as of 30th April. This has mostly been driven by the systematic volatility targeting processes, which have modestly increased exposures as volatility continues to subside. Most of these adjustments took place in the earlier stages of April and exposures have been flat since mid-month. On fixed income, we have reduced duration modestly but remain close to target duration levels, while credit hedging has also been reduced slightly.
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.
Potential investors should read the prospectus of the fund(s) (the “Fund(s)”) which is available and may be obtained from UOBAM or any of its appointed distributors, before deciding whether to subscribe for or purchase units in the Fund(s). Returns on the units are not guaranteed. The value of the units and the income from them, if any, may fall as well as rise. Please note that the graphs, charts, formulae or other devices set out or referred to in this document cannot, in and of itself, be used to determine and will not assist any person in deciding which investment product to buy or sell, or when to buy or sell an investment product. An investment in the Fund(s) is subject to investment risks and foreign exchange risks, including the possible loss of the principal amount invested. Investors should consider carefully the risks of investing in the Fund(s) and may wish to seek advice from a financial adviser before making a commitment to invest in the Fund(s). Should you choose not to seek advice from a financial adviser, you should consider carefully whether the Fund(s) is suitable for you. Investors should note that the past performance of any investment product, manager, company, entity or UOBAM mentioned in this publication, and any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance of any investment product, manager, company, entity or UOBAM or the economy, stock market, bond market or economic trends of the markets. Nothing in this publication shall constitute a continuing representation or give rise to any implication that there has not been or that there will not be any change affecting the Funds. All subscription for the units in the Fund(s) must be made on the application forms accompanying the prospectus of that fund.
The above information is strictly for general information only and is not an offer, solicitation advice or recommendation to buy or sell any investment product or invest in any company. This publication should not be construed as accounting, legal, regulatory, tax, financial or other advice. Investments in unit trusts are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited, UOBAM, or any of their subsidiary, associate or affiliate or their distributors. The Fund(s) may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund(s)’ prospectus.
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