Rising rates cause market turbulences

Strategic Income Fund with solid development

2018 YtD             – 1,86 %
2017                       +4,66%
2016                       +2,63%

Since the mid-February sell-signal we invested our liquidity into the money market with a focus on capital preservation and a modest income stream.

This year stock markets have been very volatile and we saw mainly FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) and small cap stocks rising. The Russell 2000 Index has climbed to a new all-time high while European equity markets mainly showed negative returns and the big US Indices closed slightly positive.

The investment outlook especially for fixed income assets is hardly positive. The political situation in Italy led to turbulences in bond markets. Italian bond market temporarily collapsed, leading to dramatically higher short and long-term interest rates. Italian 2-year bond yields jumped from -0,35 % to 2,55%. Given that Italy is the third largest bond market worldwide behind the U.S. and Japan, this is a potentially serious development.

Source: https://www.4conservative.com/item/5493404/panic-crisis-in-italy-dealers-pull-bids-as-bonds-stocks/

The Global Unconstrained Bond Fund, managed by Janus Henderson, a world-renowned fixed income manager, lost this year 3% and since June 2017 more than 6 % – an alarming decline for a fund that strives for positive absolute returns. Financial contagion has spread also to other weaker credit markets in Europe from Italy to Spain and Portugal , where yields have also surged dramatically. This has big influence on European banks with big exposure in these markets.

These turbulences have not been limited to Europe only. The USA suffer from the default risk in countries like Venezuela, Argentina and Turkey. Poor relative strength in high-yield markets has never been a positive indication. We continue to patiently monitor our time-tested Managed Income model on a daily basis and wait for a signal that moves us back into our broad diversified income strategy.

In the meantime we achieve in the money market modest income to cover costs of the fund and keep stability in the development of our fund value. More details can be found here: Strategic Income Fund.