UOB bank
27 March 2020
1. Market developments and outlook:
This week (23 to 27 March) saw some reprieve from the recent market frailties with equity markets rallying, corporate spreads tightening, and primary government yields staying range bound. These key developments had stemmed mainly from measures by the US Federal Reserve and the US Congress:
The Fed had started the ball rolling on Monday by taking two drastic steps to support market functioning and economic resilience amid the ongoing COVID-19 pandemic. First, the central bank took monetary policies to levels that were more accommodative than ever in its history. Secondly, it stepped up its involvement in various private sectors by creating multiple special purpose vehicles (SPVs) that will have the mandate to purchase corporate debts, exchange-traded funds (ETFs) and asset-backed securities (ABS). It also expanded the scope of acceptable collateral from loan and credit facilities launched a week earlier. These measures should help address current fixed income market dislocations.
As an additional stop gap, US lawmakers put forward a US$2 trillion economic stimulus that amounted to more than 9% of the US GDP. The fiscal package includes direct payments to households (means tested by income) which accounts for approximately 25% of the entire package. The remaining 75% is split between freeing more lending facilities for small business and select vital industries as well as substantially expanding automatic stabilizers such as unemployment insurance benefits, health-related and hospitals expenditures, postponement of tax payments and student loan schedules.
While the double whammy from the Fed and Congress are positive developments, it is difficult to assess the full impact until we have better visibility to the extent of the ill effects from the COVID-19. We expect volatility to persist until there is better visibility on how the contagion will be contained. Meanwhile, we intend to remain conservative in order to protect client capital and take on a defensive posture to safeguard against any further weaknesses. Conversely, our investment process should be nimble enough to react quickly if there are emerging signals of market stability arising from the tapering off in global infections. It’s our view that with the coordinated monetary and fiscal support from multiple governments and central banks, recovery in financial markets when it comes will be swift and steep, even if the real economy takes a little longer to pick up. It is worth highlighting the highly dynamic nature of UIFT. Just as we were quick to de-risk when the crisis was unfolding, we can equally re-risk when the pandemic shows signs of receding.
2. Performance attribution and positioning:
Enclosed the latest attribution and positioning as at 23 March 2020
| Gross Performance (USD) | As of 23 March 2020 | Contribution to Returns | ||
| Portfolio Exposure | Market Exposure | Contribution to Duration (Years) |
Month-to-Date | Year-to-Date |
| Global Research Income | 8.4% | 0.00 | -1.19% | -1.88% |
| Global Income Low Volatility | 29.8% | 0.00 | -6.65% | -9.80% |
| Equity Hedging | -24.5% | 0.00 | 3.37% | 3.75% |
| Equity Total | 13.7% | 0.00 | -4.47% | -7.93% |
| Systematic Fixed Income | 33.3% | 3.48 | -4.81% | -3.74% |
| Government bonds | -1.9% | -0.22 | -0.59% | -0.44% |
| Systematic US Corporates | 8.0% | 0.55 | -1.21% | -0.98% |
| Cash Equivalents | 1.4% | 0.00 | 0.00% | 0.01% |
| Credit Hedging | -11.7% | 0.00 | -0.18% | -0.18% |
| Fixed Income Total | 29.1% | 3.81 | -6.78% | -5.33% |
| European Financials | 6.5% | 0.19 | -0.85% | -0.82% |
| Global Property | 4.6% | 0.00 | -1.00% | -1.31% |
| Alternatives Total | 11.1% | 0.19 | -1.84% | -2.13% |
| Total | 54.0% | 4.00 | -13.09% | -15.39% |
3. Recent portfolio positioning and key changes:
Over the past couple of weeks, our focus has turned from managing equity risk to that of fixed income reallocations. We have been mindful that bond yields tend to bottom ahead of equities in times of market stress. Having taken into account the bond rally year-to-date, we have been trimming our duration exposures over the past week. While we still expect credit market volatility to stay elevated, we will seek to identify inefficiencies in pricing of credit risk and keep an eye on high-quality issuers. We have kept index hedges as safeguards against further spread widening.
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. In the event of any discrepancy between the English and Mandarin versions of this publication, the English version shall prevail.