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.
January 28, 2019 Update
NAV 125.2095 · YTD 1.63%
From the 31st December 2018 to the 28th January 2019, the Signet Butler FFF European High Yield Fund returned +1.63% net, underperforming the iBoxx Eur Liquid High Yield index by -0.07% over the period. After a weak 4Q18, which saw S&P 500 lose c. -14%, risk markets rebounded in early January after the publication of strong US economic data and a more dovish tone from the Fed. This led us to increase market exposure to benefit from the rally which occurred through the month of January, also helped by a lack of primary issuance (which tends to weigh on secondary markets). However, this was what we call a reluctant rally, i.e. with an outperformance of BB over B and defensive sectors over cyclical sectors. Top performers were Lycra (US specialty textile, +5.6pts, Unilabs (Swedish Lab Testing, +5.1pts) and Refresco (Dutch Dairy & Packaging, +4.7pts). Among the very few bonds down for the period, the worst performers were to be found in cyclical sectors: Adient (US Autoparts, -5.5pts) and Kongsberg (Norwegian Autoparts, -4.3pts). It remains to be seen if this rally can last, and US China trade talks developments will clearly have a key role to play.
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