Monthly Commentary July

GAM Star Credit Opportunities (USD)

Markets started the month as a continuation of what happened in June, and with the expectation that the Central Banks would deliver on their dovish comments, which the ECB did. Following that, markets were slightly weaker and weakened into month-end with the reappearance of political tensions linked notably to Brexit. As a result, spreads in our securities remained relatively stable from the beginning of the month. Therefore, our positive performance during the month is mainly explained by the income we received. We have now progressed through the majority of second quarter European banks’ earnings; we continue to observe strong operating performance and rock-solid balance sheets in the face of rising macroeconomic uncertainty – namely trade wars and Brexit. This is counterbalanced by dovish central banks with a recent 25bps rate cut by the FED and prospects of further easing by the ECB. In our view this is likely to be supportive for credit metrics of banks, albeit at the expense of a marginal decline in profitability. However, talks by the ECB about deposit tiering could help alleviate some of the profitability pressure for European banks due to lower rates.

For instance, banks such as Banco Santander and Credit Suisse came with very strong results. UK banks such as Lloyds and RBS have also shown that, despite Brexit concerns, they continue to have very sound earnings, and also have large excess capital, which is very positive from a credit standpoint. We still feel our valuations remain very attractive and should further benefit from the strong and improving credit fundamentals of the companies in which we are invested. Government bond yields remain low and the 10 year US Treasury finished the month at 2.01%. As such, we feel we are very well positioned as we are capturing spreads well above 300 bps within our fund. Moreover, the lower government bond yields make the income aspect of our portfolio even more attractive on a relative basis.

The fund is well positioned to capture high and predictable income and given the attractive valuation levels; we feel that the fund has scope to benefit from further capital gains.

During the month of June, markets turned stronger following dovish comments by both the ECB and the Fed. This has led to a strong rally, and spreads within our securities have tightened during the month. However, we still feel our valuations remain very attractive and should further benefit from the strong and improving credit fundamentals of the companies in which we are invested. Government bond yields have continued to significantly come down during the month, as we have seen for example the 10 year Gilts finish the month at 0.83%. As such, we feel we are very well positioned as we are capturing spreads well above 400 bps within our fund. Moreover, the lower government bond yields make the income aspect of our portfolio even more attractive on a relative basis.

GAM Star Credit Opportunities (GBP)

Markets started the month as a continuation of what happened in June, and with the expectation that the Central Banks would deliver on their dovish comments, which the ECB did. Following that, markets were slightly weaker and weakened into month-end with the reappearance of political tensions linked notably to Brexit. As a result, spreads in our securities remained relatively stable from the beginning of the month. Therefore, our positive performance during the month is mainly explained by the income we received. We have now progressed through the majority of second quarter European banks earnings and we continue to observe strong operating performance and rock solid balance sheets in the face of rising macro-economic uncertainty – namely Trade wars and Brexit. This is counterbalanced by dovish central banks with a recent 25bps rate cut by the FED and prospects of further easing by the ECB. In our view this is likely to be supportive for credit metrics of banks, albeit at the expense of a marginal decline in profitability. However, talks by the ECB about deposit tiering could help alleviate some of the profitability pressure for European banks due to lower rates.

For instance, banks such as Banco Santander and Credit Suisse came with very strong results. UK banks such as Lloyds and RBS have also shown that, despite Brexit concerns, they continue to have very sound earnings, and also have large excess capital, which is very positive from a credit standpoint. Talks by the ECB about deposit tiering could also lead to more positive fundamentals for European banks. We still feel our valuations remain very attractive and should further benefit from the strong and improving credit fundamentals of the companies in which we are invested. Government bond yields have continued to come down during the month and we have seen the 10 year Gilt finish the month at +0.609%. As such, we feel we are very well positioned as we are capturing spreads well above 450 bps within our fund. Moreover, the lower government bond yields make the income aspect of our portfolio even more attractive on a relative basis.

The fund is well positioned to capture high and predictable income and given the attractive valuation levels; we feel that the fund has scope to benefit from further capital gains.

GAM Star Credit Opportunities (EUR)

Markets started the month as a continuation of what happened in June, and with the expectation that the central banks would deliver on their dovish comments, which the European Central Bank (ECB) did. Following that, markets were slightly weaker and weakened into month-end with the reappearance of political tensions, linked notably to Brexit. As a result, spreads in our securities remained relatively stable from the beginning of the month. Therefore, our positive performance during the month is mainly explained by the income we received. We have now progressed through the majority of second quarter European banks’ earnings; we continue to observe strong operating performance and rock solid balance sheets in the face of rising macroeconomic uncertainty – namely trade wars and Brexit. This is counterbalanced by dovish central banks, with a recent 25 bps rate cut by the US Federal Reserve (Fed) and prospects of further easing by the ECB. In our view this is likely to be supportive for credit metrics of banks, albeit at the expense of a marginal decline in profitability. However, talks by the ECB about deposit tiering could help alleviate some of the profitability pressure for European banks due to lower rates.

As examples, banks such as Banco Santander and Credit Suisse came out with very strong results. UK banks such as Lloyds and RBS have also shown that, despite Brexit concerns, they continue to have very sound earnings and also have large excess capital, which is very positive from a credit standpoint. We still feel our valuations remain attractive and should further benefit from the strong and improving credit fundamentals of the companies in which we are invested. Government bond yields continued to come down during the month and we saw the 10-year bund finish the month at -0.44%. As such, we feel we are very well positioned as we are capturing spreads well above 400 bps within our fund. Moreover, the lower government bond yields make the income aspect of our portfolio even more attractive on a relative basis.

The fund is well positioned to capture high and predictable income, in our view, and given the attractive valuation levels; we feel the fund has scope to benefit from further capital gains.

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