Portfolio Manager comment Coeli Frontier Markets Fixed Income June 2021
The fund had negative performance of 0.62% (share class I USD, after fees). Expectations of further support for frontier countries continue to drive interest in our space. Two countries were the main reasons of negative performance during the month, Sri Lanka and El Salvador. A number of commodities fell during the month, including copper and gold, which lead to some weakness among commodity rich frontier issuers. The 10-year treasuries finished the month at 1.47% versus 1.60% at the end of May. (At the portfolio level we manage our duration within a 0.3 band versus the benchmark duration which is currently at 5.7.)
In June, we had the G7 meeting in the UK where China was the big topic. As part of these discussions support for the poorest nations was mentioned, in particular as a counter measure to the Chinese Belt and Road Initiative which has been running since 2013. This is another geo-political initiative we expect to benefit our frontier universe.
In El Salvador, we have seen bonds drop by 7% on back of the extremely popular president firing all judges and shortly thereafter introducing Bitcoin as a legal tender in the country. Both actions have put on hold an IMF deal which was imminent and also much needed by the country. Bitcoin aside, the relationship of the president, the US and IMF will drive spreads in El Salvador short term. In Sri Lanka, we have seen a drop in prices on the back of a substantial bond maturity coming up at the end of July.
June has been a relatively busy month for the fund. We participated in four new issues during the month. On two of the transactions we priced out, i.e. the bonds were issued at yields lower than our limit. One was a state rail company in Georgia and the other was a pan African green bank bond. Instead of the pan African bank issue we purchased an existing bond from a subsidiary in Nigeria at attractive levels. In Kenya we reduced our order on the back of the pricing, but the bond still performed. A first for the fund we got no allocation on our order in a new issue in Mongolia. Senegal also issued a new bond and bought back one of our short dated bonds, we passed however on the new bond.
In the secondary market we increased our holdings in a Vietnam position and added a holding in Tunisia short dated bonds in anticipation of an IMF engagement. We funded our new positions by reducing our holdings in Jamaica, Jordan and Azerbaijan, all three due to pricing levels.
In terms of performance, Sri Lanka and El Salvador were both the negative performance drivers in June. On the positive side Paraguay and Namibia contributed most. Paraguay is one of the most US interest rate sensitive plays in our universe and Namibia is a defensive short term bond. In relative terms, the fund’s best positions were the holdings in Namibia and not owning any Belarus exposure. Relative underperformance came from Sri Lanka and El Salvador.
The largest positions in the fund are Ghana, Nigeria and Sri Lanka. The position in Nigeria increased on the back of our investment in a local subsidiary of the pan African bank Ecobank Transnational. Our current top-down spread risk level is at 114%. Covid-19 headlines are likely to increase due to the Delta variant though the “natural” drop in cases in India is encouraging for our Frontier universe, which are characterized by low vaccination rates and young populations. We continue to expect more positive headlines from the IMF during the summer months.
Finally, we are delighted to announce that Lars Krabbe will join as a Portfolio Manager on the Coeli Frontier Markets Fixed Income Fund from August 2021 onwards. Lars has a strong track record managing Emerging and Frontier Market debt portfolios. Over the past 20 years he has held senior roles at BankInvest, Nordea Investment Management and Danske Capital.
|Fund metrics 1)||Fund||Benchmark 2)|
|Total fund assets (USDm)||37|
|Yield to worst (%)||7.3||6.6|
|Spread duration (years)||5.8||5.9|
|Number of countries||31||36|
|Number of bonds||71||144|
|Fund (I USD)||-0.62%||3.92%|
1) As of end of June 2021, using data from JPM Morgan, Bloomberg, Coeli
2) JPM NEXGEM is the fund’s benchmark
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.