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.
April 30, 2019 Update
NAV 130.8557 · YTD 6.22%
From the 25th March 2019 to the 29th April 2019, the Signet Butler FFF European High Yield Fund returned +1.87% net, outperforming the iBoxx Eur Liquid High Yield index by 0.30% over the period. Year-to-date, the performance is 6.22% net and the outperformance against the index is 0.16%. Risk assets remained rock solid throughout April, with no intra-month volatility. This reflects a supportive economic policies/news flow backdrop, along with a sharp improvement in investors sentiment, now constructive/slightly optimistic on average. Top performers were Adient (US Autoparts, +12.1pts), Douglas (German Retail, +10.0pts) and Garrett (US Autoparts, +4.6pts). Worst performers were Hema (Deutch Retail, -2.7pts) and Lecta (French Packaging, -1.4pts). From this standpoint, the Q1 earnings season have been materially above expectations, in particular in margin terms, whilst one of the triggers of the Q4 Equities correction had been the fear of peak earnings. Despite a gradual acceleration in primary market activity, secondary HY market conditions have also remained very strong until Apr, 23 before a bout of profit-taking began (still continuing as of May, 3), and we started to reduce our exposure.
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