Portfolio Manager comment Coeli Frontier Markets Fixed Income April 2021
April was the first full month for our fund. April was also the best month year to date for frontier fixed income. The fund delivered 2.96 percent performance in the share class I-USD after fees. The IMF conferences took place at the start of the month. This is the biggest event in the frontier fixed income space, where this year the tone from both IMF and country representatives was positive in light of Covid-19. Global GDP growth is expected to be 6 percent in 2021.
In April, we also saw a stop to the rise in US yields. The 10-year t-bills went from a high of 1.74 percent to 1.63 percent over the month.
During the month we also experienced numerous geopolitical events which affected our markets. This included the stand-off between Russia and Ukraine, which impacted the bonds in all former USSR countries. We have several Latin American countries looking to introduce budget cuts to release support from the IMF, these are facing various levels of protests locally.
The country Georgia issued a new bond during the month to refinance their existing bond and managed to reduce their coupon from 6.875 percent on their last bond to 2.75 percent on the new bond. Georgia is among the strongest countries in our investment universe. We do not currently own it in the fund due to the current pricing.
In April we had positive performance from all countries in the portfolio. The best performing positions were bonds in Sri Lanka, Ghana and Nigeria, in line with the largest positions in the portfolio. In relative terms, Sri Lanka was our best position in the portfolio, and we lagged in our underweight in Angola.
We started the month being 80 percent invested and ended the month being fully invested. The largest three investments in the fund are Ghana, Sri Lanka & Nigeria. Sri Lanka is the highest risk investment in the fund given the average yield of 18 percent on its bonds. We believe it is the most attractive risk reward opportunity in the market despite the high probability of having to restructure their debt in the next 24 months. Ghana on the other hand has just accessed the markets in March and was able to extend its debt profile.
Relative to our benchmark, our largest overweights are in Namibia, Sri Lanka and Zambia.
41 percent of the fund is invested in Sub-saharan Africa followed by 21 percent in Latin America. Currently all our investments are in hard currency bonds and 2 percent is invested in corporate bonds and 7 percent in corporate bonds owned by sovereigns (“quasi-sovereign bonds”).
Our current top-down spread risk level is at 111 percent, which is slightly above our long-term risk target of 110 percent. We are anticipating several countries in our space to issue new bonds over the coming months. The spread of the Covid-19 wave in India to neighboring countries is a potential risk factor to the overall strong performance outlook for frontier fixed income.
DISCLAIMER. The information provided here does not constitute professional financial advice. Past performance is not a guarantee of future returns. The price of the investment may go up or down and an investor may not get back the amount originally invested. The key investor information document (KIID) and prospectus are available at www.coeli.se.