Monthly Commentary April

GAM Star Credit Opportunities (USD)

During the month of April, financial markets had a positive trend, as reflected by the prices for the securities within our fund. On Brexit, the EU has agreed to delay until 31 October, and the prospect of a no deal disappearing has been taken positively by the financial markets. The Spanish general elections were a non event from a credit perspective. The Fed and the ECB remained dovish, which meant government bond yields remain at very low levels. This, in our view, makes the income aspect of our securities even more attractive on a relative basis. We still feel our securities are very cheap and should benefit going forward from the strong credit fundamentals of the companies in which we are invested. Moreover, the spread tightening that we have experienced year-to-date is only part of the recovery of the spread widening of last year.

As an example, USD AT1 CoCos have tightened by more than 100 bps year-to-date but are still around 100 bps wider than in January 2018. For legacy securities of banks and insurance, we have only seen a beginning of a recovery in prices. The new issues that came in Q1 have performed very well; they had come at very attractive levels. For instance, Barclays came with an AT1 at the end of March, which was at an extremely attractive level of more than 560 bps over government rates. It has gone up more than 5 points but is still giving close to 7% yield in USD. We believe this security is still very attractive. Banco Santander, who had not called a EUR AT1 in February, called a USD 6.375% AT1 CoCo. Santander had pre-financed that reimbursement with the Santander 7.5%, which came 20 bps wider than the Santander 6.375%. This has served as a positive technical factor for the AT1 CoCo market and shows that the regulator seems to have some flexibility regarding the refinancing of AT1 CoCos. 

Earnings season has just kicked off and we feel that for the moment results are in line with expectations from a credit standpoint. The fund is well positioned to capture the high and predictable income and given the attractive valuation levels combined with the supportive market backdrop, we feel that the fund has scope to benefit from further capital gains.

GAM Star Credit Opportunities (GBP)

During the month of April, financial markets had a positive trend, as reflected by the prices for the securities within our fund. On Brexit, the EU has agreed to delay until 31 October, and the prospect of a no deal disappearing has been taken positively by the financial markets. The Spanish general elections were a non event from a credit perspective. The Fed and the ECB remained dovish, which meant government bond yields remain at very low levels. This, in our view, makes the income aspect of our securities even more attractive on a relative basis. We still feel our securities are very cheap and should benefit going forward from the strong credit fundamentals of the companies in which we are invested. Moreover, the spread tightening that we have experienced year-to-date is only part of the recovery of the spread widening of last year.

As an example, GBP AT1 CoCos have tightened by less than 100 bps year-to-date but are still close to 200 bps wider than in January 2018. For legacy securities of banks and insurance, we have only seen a beginning of a recovery in prices. The new issues that came in Q1 have performed very well; they had come at very attractive levels. For instance, Coventry came with an AT1 at the end of March, which was at an extremely attractive level of more than 600 bps over government rates. It has gone up more than 2 points but is still giving more than 6% yield in GBP. We believe this security is still very attractive. Banco Santander, who had not called a EUR AT1 in February, called a USD 6.375% AT1 CoCo. Santander had pre-financed that reimbursement with the Santander 7.5%, which came 20 bps wider than the Santander 6.375%. This has served as a positive technical factor for the AT1 CoCo market and shows that the regulator seems to have some flexibility regarding the refinancing of AT1 CoCos. 

Earnings season has just kicked off and we feel that for the moment results are in line with expectations from a credit standpoint. The fund is well positioned to capture the high and predictable income and given the attractive valuation levels combined with the supportive market backdrop, we feel that the fund has scope to benefit from further capital gains.

GAM Star Credit Opportunities (EUR)

During the month of April, financial markets had a positive trend, as reflected by the prices for the securities within our fund. On Brexit, the EU has agreed to delay until 31 October, and the prospect of a no deal disappearing has been taken positively by the financial markets. The Spanish general elections were a non event from a credit perspective. The Fed and the ECB remained dovish, which meant government bond yields remain at very low levels. This, in our view, makes the income aspect of our securities even more attractive on a relative basis. We still feel our securities are very cheap and should benefit going forward from the strong credit fundamentals of the companies in which we are invested. Moreover, the spread tightening that we have experienced year-to-date is only part of the recovery of the spread widening of last year.

As an example, GBP AT1 CoCos have tightened by less than 100 bps year-to-date but are still close to 200 bps wider than in January 2018. For legacy securities of banks and insurance, we have only seen a beginning of a recovery in prices. The new issues that came in Q1 have performed very well; they had come at very attractive levels. For instance, Coventry came with an AT1 at the end of March, which was at an extremely attractive level of more than 600 bps over government rates. It has gone up more than 2 points but is still giving more than 6% yield in GBP. We believe this security is still very attractive. Banco Santander, who had not called a EUR AT1 in February, called a USD 6.375% AT1 CoCo. Santander had pre-financed that reimbursement with the Santander 7.5%, which came 20 bps wider than the Santander 6.375%. This has served as a positive technical factor for the AT1 CoCo market and shows that the regulator seems to have some flexibility regarding the refinancing of AT1 CoCos. 

Earnings season has just kicked off and we feel that for the moment results are in line with expectations from a credit standpoint. The fund is well positioned to capture the high and predictable income and given the attractive valuation levels combined with the supportive market backdrop, we feel that the fund has scope to benefit from further capital gains.

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