Management company comment about ABLV open-end mutual funds in February

Riga, Latvia, March 4, 2016, 16:06 / Investments

February turned out to be as stressful for global financial markets as January. It seemed that the massive “January counterattacks” of the leading central banks, namely, their promises to apply additional means for priming of economy, if necessary, suspended panic sales on risk asset markets, which were due to the “inadequate situation” in Chinese capital market.

However, on the very first day of February speculators managed to find new reasons for resuming sales. The key one was broadcast rumours about possible financial problems of Deutsche Bank and several other large European banks. This led to a fall in quotations in the banking sector, which put all main capital market indexes under negative pressure. The corporate reporting season did not bring any joy either as the largest European, American and Japanese corporations demonstrated the reduction of profit and drop in sales. Although most analytics awaited the degradation of the situation on the microlevel, the appearing data made investors’ negative mood even worse. As a result, the decrease of S&P500 index by the middle of the month was 11% compared to the beginning of the year, Eurostoxx 600 decreased by 17%, and Nikkei 225 plummeted by 21,5%. While the American index only reached its January minimum, the European and Japanese ones dropped significantly lower than in the middle of January.

Such sequence of events on stock markets had a strong negative influence on almost all other risk classes of assets, from raw materials markets to government bonds of emerging countries, even those of a high credit rating.

However, as is often the case, the situation fundamentally changed practically in one day when Deutsche Bank announced the buyback of significant amount of its bonds. Thereby the bank decided to demonstrate that the rumours prevailing on the market were groundless and were rumours only. Moreover, several banks had already published quite good financial reports by that time, which became an evidence of performing European banking sector, regardless of long-term low rates.

Taking into consideration the levels of capital market indexes, the news resulted in the increase of buyers, which led to the relevant recovery of markets in the second half of the month. However, if American S&P500 could recover almost all losses of the first two weeks, the European markets closed the month in red.

Curiously enough, the stock markets of emerging countries looked quite good, taking into account the course of events. The maximum drop of MSCI EM index during the month was 4% only, but it managed to regain its position by the end of the month. It was possibly related to the fact that most market participants which wanted to get rid of such assets had already done it a long time ago (MSCI EM stock market index was dropping for the last three years), therefore, the number of sellers was low. However, the number of buyers is not high either, taking into account macroeconomical, political and other factors, as well as the situation on the raw materials market.

One could observe similar scenarios on the markets of corporate bonds and bonds of emerging countries. Essentially, in the context of low liquidity, the behaviour of prices on the markets followed the behaviour of prices on the global stock market. It is fair to say that the market of government bonds of emerging countries looked better than the market of corporate bonds. It was a result of the drop-down of American and German government bonds, which prevented the prices of High Grade bonds from plunging. High Yield sectors was more sensitive to the behaviour of prices on raw materials markets and overall mood regarding the risks. Nevertheless, despite high volatility, all bond funds under the management of ABLV Asset Management demonstrated positive yield at the end of the month.

In the short-term, we expect continuation of high volatility on both stock markets and bond markets. The shocks of the beginning of the year were too big, therefore, the investors should come to themselves first. Prior to making serious decisions, market participants, most likely, will again focus their attention on coming meetings of the leading central banks, ECB and FRS in particular.

Mutual funds’ return as at 29.02.2016:

the beginning
of 2016 (YTD)
20151 2014 2013 2012 Annualised
return since
the inception
Government Bond Funds            
ABLV Emerging Markets USD Bond Fund 1,81% 2,05% 2,75% -3,94% 15,63% 4,75%
ABLV Emerging Markets EUR Bond Fund 0,85% 2,31% 1,83% 0,92% 15,88% 3,81%
Corporate Bond Funds            
ABLV High Yield CIS USD Bond Fund 1,54% 25,30% -16,58% 2,20% 17,96% 5,04%
ABLV High Yield CIS RUB Bond Fund 3,36% 13,78% -10,21% 7,00% - 4,62%
ABLV Global Corporate USD Bond Fund 0,49% -1,58% 0,34% - - 0,45%
ABLV European Corporate EUR Bond Fund -1,03% 1,47% 3,30% - - 2,70%
ABLV Emerging Markets Corporate USD Bond Fund 0,99% 0,09% - - - 2,45%
Total Return Funds            
ABLV Multi-Asset Total Return USD Fund -2,81% -7,07% - - - -9,36%
Stock Funds            
ABLV Global USD Stock Index Fund -10,50% -6,78% -0,26% 10,24% 9,33% -0,37%
ABLV Global EUR Stock Index Fund -12,84% 0,86% 3,84% 3,26% 11,67% -2,04%
ABLV US Industry USD Equity Fund -7,34% -1,03% 6,95% - - 0,59%
ABLV European Industry EUR Equity Fund -9,22% 5,21% 2,09% - - -0,81%

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 is available at ABLV Bank home page in the section “ABLV Mutual Funds”.