Signet Butler FFF European High Yield Fund
The economic storm in Europe has increased volatility in the region’s credit markets, and magnified the divergence intra sector within local markets. The European high yield space is a smaller but faster growing market than in the US, increasing at over 25% per year in volume terms, which creates a more diversified universe. This growth has also created mispricing opportunities in individual credits that are not well understood by market participants.
Fundamental and market-based selection approach through proprietary research and deep understanding of the European markets. The experienced Butler team is solely dedicated to this niche space and has a real edge in this market where less than 50% of the outstanding issuance is covered by brokerage research. In order to understand a company’s idiosyncratic risk, an investor must also have an intricate understanding of the local laws, covenants, cultural differences, history of management teams, corporate governance and colour on other market participants. These are areas in which Butler have the ability to add real value to managing portfolios of fixed income instruments.
This team believes that the opportunity lies in both bottom up-fundamental credit picking as well as taming volatility throughout the cycles. This portfolio will be long bias with risk actively managed via cash, credit and duration allocation as well as tail hedges. The team’s philosophy is to manage market exposure through active trading and portfolio repositioning.
October 30, 2018 Update
NAV 126.1868 · MTD -0.83% · YTD 0.25%
From the 24th September 2018 to the 30th October 2018, the Signet Butler FFF European High Yield Fund returned -0.83% net, outperforming the iBoxx Eur Liquid High Yield index by 0.52% over the period. Year-to-date, the performance is 0.25% net and the outperformance against the index is 1.28%. The outperformance was explained by an overall reduced market exposure, the purchase of convex hedges (equity puts), interest rates hedges and a portfolio tilted towards more defensive sectors, as underperformance of cyclical companies was a key theme into 3Q18 earnings season. Top performers were Recordatin (Italian Pharmaceuticals, +1.3pts), WFS (French Logistics, +1.1pts) and Cerba (French Lab Testing, +0.8pts). Worst performers were unsurprisingly to be found in cyclical sectors: Garrett (US Autoparts, -6.4pts), JLR (OEM, -4.pts) and CBR (German Fashion Retail, -5.7pts. Reactions from Rating agencies proved more benign than expected on Italian budget which helped Equity markets bottom out. Into month-end we started to grow exposure through the exit of above mentioned hedges and also with an increase in single name exposures but mainly on defensive sectors for the time being.
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