altana corporate bond fund ucits - amazon s3€¦ · 1 glbmrn 7 06/01/28 +9 1 astonm 5.75 04/15/22...

Monthly Newsletter

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Altana Corporate Bond Fund UCITS

Share Class/ Bloomberg ID $ / ALTCBOU ID £ / ALTCBCG ID € / ALTCBAE ID Portfolio Manager & Chief Investment Officer:

Lee Robinson

July 2019 0.26% 0.16% 0.04%

YTD 6.21% 5.19% 4.49% Joint – Portfolio Manager: Philip Crate

NAV (since inception): $ 104.10 Fund AUM: $ 57,925,984

Key Points

The Altana Corporate Bond Fund (ACBF) USD-institutional share class generated a net return (after fees)

of +26bps (GBP and € institutional share class equivalent net return of +16bps and +4bps, respectively) in

July.

Mixed performance for the portfolio with the large winners and losers broadly cancelling themselves out.

ACBF’s exposure to GBP denominated high yield credit had some impact on performance; major detractors

in July mainly GBP issuers following disappointing earnings releases.

The largest detractor was Aston Martin 2022 bonds (-13bps) after it posted disappointing Q2 results;

however, we remain constructive towards the name given the c.9% yield on bonds and a (still) decent equity

cushion despite the recent fall in the company’s share price.

ACBF’s performance YTD has been stellar with the USD share class generating a positive net return of

+6.21% (GBP and €-share class equivalent net return of +5.19% and +4.49%, respectively).

Overall we remain broadly constructive towards credit but are watchful for any further escalation in the trade war between the US and China. Political risk in Europe increasing too.

As of end of

July 2019 Annualised returns Volatility Sharpe Ratio

Sortino

Ratio

ACBF Strategy 1M 3M YTD 1Y ITD* 1Y ITD* 1Y ITD* 1Y

$ class 0.26% 0.56% 6.21% 5.25% 5.21% 1.53% 1.54% 3.42 3.37 6.27

HF Credit Index ($) 0.49% 1.73% 3.38% 0.73% 2.56% 2.13% 2.09% 0.34 1.23 0.48

Barclays Global IG ($) 0.90% 4.06% 9.19% 9.77% 5.28% 2.20% 2.47% 4.43 2.14 8.62 * Inception to date numbers are from January 2016 for comparative purposes.

Altana Corporate Bond Fund (UCITS) Track Record and Statistics (USD data)

Return Since January 2016 20.70%

Average Monthly Return 0.44%

Consecutive Pos./Neg. Months 6

Max. Winning Streak 2.69%

Max. Drawdown -2.40%

Annualised SD * 1.55%

Sharpe Ratio * 2.90

Fund Size $57.93m

Current Weighted Average Yield 5.1%

Main Performance Contributors Top Performers Bps Worst Performers Bps

1 GLBMRN 7 06/01/28 +9 1 ASTONM 5.75 04/15/22 REGs -13

2 RBS 6.425 PERP +4 2 MTNLN 6.75 01/31/23 REGS -8

3 TRVLEX 8 05/15/22 REGS +4 3 ANTOLN 3.25 04/30/24 REGS -4

4 HEMABV 0 07/15/22 REGS +4 4 EIGLN 6.875 02/15/21 EMTN -3

5 GSL 9.875 11/15/22 144A +4 5 YELLUK 8.5 05/02/23 REGS -3

0.960.970.980.991.001.011.021.031.041.051.061.071.081.091.101.111.121.131.141.151.161.171.181.191.201.211.22

Altana Corporate Bonds Fund UCITS HF Credit Index BARCLAYS Global Investment Grade Index

July 2019

Monthly Newsletter

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Fund Strategy

The objective of the Altana Corporate Bond Fund (ACBF) is to generate a positive return in all market phases by investing in a diversified portfolio of corporate bonds globally. The fund sources attractive bond investment opportunities in all major markets, seeks corporations that have an extremely high degree of repayment as well as strong defendable business models. Risks on macroeconomic, geopolitical, sector and issuer levels are limited by following a structured allocation strategy. ACBF takes global exposure either via cash bond positions or derivatives, depending on relative valuations and market opportunities.

€ / ALTCBAE ID. Monthly performance (%). Net of all legal, admin, trading and management fees.

YEAR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD ITD

2016 0.06% -0.78% 1.62% 0.25% 0.12% -0.32% 1.39% 0.89% -0.38% 0.80% 0.95% 0.93% 5.65%

12.09% 2017 0.01% 0.44% -0.19% 0.83% 0.88% -0.41% 0.58% 0.19% 0.42% 0.88% -0.45% -0.06% 3.16%

2018 0.30% 0.07% -0.31% 0.06% -0.06% -0.16% 0.65% 0.24% 0.44% -0.51% -1.25% -1.04% -1.58%

2019 1.45% 1.35% 0.71% 1.09% -0.88% 0.68% 0.04% 4.49%

£ / ALTCBCG ID. Monthly performance (%). Net of all legal, admin, trading and management fees.


2016 0.10% -0.74% 1.73% 0.32% 0.17% -0.27% 1.47% 0.97% -0.34% 0.87% 1.02% 1.01% 6.45%

16.00% 2017 0.11% 0.48% -0.12% 0.88% 1.00% -0.32% 0.68% 0.25% -0.24% 1.51% -0.38% 0.01% 3.91%

2018 0.39% 0.14% -0.21% 0.17% 0.02% -0.08% 0.72% 0.34% 0.72% -0.38% -1.16% -0.97% -0.31%

2019 1.49% 1.41% 0.82% 1.19% -0.75% 0.79% 0.16% 5.19%

$ / ALTCBOU ID. Monthly performance (%). Net of all legal, admin, trading and management fees.


2016 0.12% -0.71% 1.78% 0.32% 0.19% -0.23% 1.50% 1.00% -0.23% 0.91% 1.14% 1.01% 6.97%

20.69% 2017 0.16% 0.53% -0.06% 0.97% 1.08% -0.22% 0.75% 0.34% 0.63% 1.02% -0.29% 0.06% 5.06%

2018 0.53% 0.21% -0.61% 0.36% 0.16% 0.03% 0.91% 0.47% 0.74% -0.29% -1.02% -0.80% 1.11%

2019 1.68% 1.59% 0.89% 1.35% -0.66% 0.96% 0.26% 6.21%

Note: The UCITS fund was launched in May 2014. From January 2016, Lee Robinson and Philip Crate took over the management of the fund. For full historical data prior to this, please contact: [email protected].

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Monthly Newsletter

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Portfolio Activity & Outlook Performance Review This month’s newsletter is the first new look intra-quarterly newsletter and will focus on how we performed versus the broader market, as well as providing the usual attribution analysis for the portfolio. Looking ahead we will provide our market views on a quarterly basis unless there has been a fundamental shift in opinion since our last quarterly strategy comment. To remind readers our current stance is broadly constructive towards credit given the extraordinary support on offer from the major central banks. However, we are also mindful of the potential disruptive influence of any escalation of the trade war between the US and China and rising political risk in Europe (potential early elections in Italy and ongoing Brexit uncertainty up to the UK’s scheduled exit from the EU on 31 October 2019). July was another positive month for the Altana Corporate Bond Fund (“ACBF”) with the fund posting a net return (after fees) of +26bps (GBP and € share class equivalent net return of +16bps and +4bps, respectively). This performance was broadly in line with the blended excess return for IG and HY credit indices in July: Total return for the broader credit market, particularly for IG, was again flattered by the strong performance for sovereign bonds (+1.7%), and adjusting for this factor excess return performance for global credit was a more modest +30-+50bps, with € credit outperforming over the course of the month. ACBF’s performance YTD has been stellar with the fund posting a positive net return of +6.21% (GBP and € share class equivalent net return of +5.19% and +4.49%, respectively). The fund’s risk adjusted return is also worth highlighting: Sharpe Ratio of 3.42 on a one-year look back basis. Following June’s strong performance, July has seen slightly more muted performance across global risk assets but with the majority still seeing a positive total return. Indeed, in local currency terms, 27/38 assets (excluding currencies) saw a positive total return, even if only 16/38 assets were up in USD terms given the rally in the Greenback (+2.7% against the EUR). Looking at the year to date, however, the performance remains incredibly strong. Indeed, this is the first year since at least 2007 where, excluding currencies, all 38 of the assets in our sample have delivered positive YTD returns in local currency terms in the seven months up to July. It was a good month for precious metals, with silver being the strongest performer in July with a +6.2% return, while gold also made a modest gain (+0.3%). It should be noted for silver though that this is somewhat of a bounce back for the asset, having been the worst-performing asset YTD up to end-June, and even with July’s outperformance it still remains near the bottom of the league table (36/38 in local currency terms) on a YTD basis. Other commodities told a less positive story, with Brent and WTI seeing returns of -2.1% and +0.2%, respectively, while copper was down –1.5%. The worst-performing asset last month was sterling, down -4.2% against the dollar, a reflection of markets increasingly pricing in the risks of a hard Brexit outcome now that Prime Minister Johnson has moved into 10 Downing Street. The moves have actually seen GBPUSD become the worst-performing asset in our sample on a YTD basis as well, and it’s the worst month for GBPUSD since October 2016. But the losses for sterling have seen gains for UK equities, at least in local currency terms, with the FTSE 100 seeing one of the most positive returns (ranking 4/38) in local currency terms as multinationals benefit from the weaker currency, while gilts were also up +2.2% in local currency. With the sterling depreciation, however, it’s a different story in USD terms, with the FTSE 100 down -2.1% in USD (in line with the Stoxx 600, -2.3%), while gilts were down -2.2%.

Monthly Newsletter

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Figure 1: Total Return Performance of Major Global Financial Assets in July 2019 (in local currency)

Source: Deutsche Bank, Bloomberg Finance LP, Mark-It

It was a good month for credit, though EUR credit outperformed the US in local currency terms as investors priced in new CSPP, with EUR and US IG up +1.6% and +0.6%, respectively, while EUR and US HY were up +0.8% and +0.6%, respectively. Government bonds were also up on the whole (with the exception of Treasuries), with BTPs (+3.2%) leading the advance, while bunds and OATs also made strong gains of +0.9% and +1.4%, respectively, as yields continued to drop – both ending the month at multi-century all-time record lows. Figure 2 below highlights that, while July was another month of positive total returns supported by lower government bond yields, excess returns were less stellar given the modest reduction in credit risk premiums. As far as ACBF is concerned, our performance was negatively impacted by the fund’s low duration profile – we didn’t benefit as much from lower government bond yields compared with long duration funds and broader credit benchmarks - and some idiosyncratic factors affecting our GBP denominated issuers, like Aston Martin and Matalan. Figure 2: Cross Currency Performance Analysis – July 2019

Note: Excess returns approximated by subtracting a similar duration government bond index return from the credit index return. Source: Deutsche Bank, Markit Group

Monthly Newsletter

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Performance Contribution The most noteworthy performer was GLBMRN 7% June 2028 (“Global Marine”) with a positive contribution of +9bps. Bonds responded positively to news that its parent, Transocean Inc, a leading independent off-shore oil services company, had put in place a new guarantee structure to support a $300mn issue by its subsidiary Global Marine. This new guarantee arrangements provide a broad set of intermediate holdco guarantors to support the creditworthiness of the Global Marine bonds. Furthermore, Transocean also disclosed that the Global Marine bond issue would also benefit from an intercompany obligation of around $2.1bn (implying 7x coverage from this receivable on the parent) to avoid a make whole provision being activated on the subsidiary’s only outstanding bond issue. We believe that this new parent guarantee structure/receivables benefit makes the old legacy Global Marine bonds the most interesting bond in the Transocean structure. Meanwhile, Transocean reported a solid set of Q2 results driven by lower than expected operating and maintenance expenses and slightly better rig utilisation. The company also generated higher than expected free cash flow of $67mn in the quarter. We remain of the view that Transocean is one of the better placed operators to benefit from the nascent recovery in ultra-deep-water and harsh environment markets. On the negative side of the ledger ASTONM 5.75% April 2022 (“Aston”) was the most significant detractor to performance with a negative contribution of -13bps. This was driven by poor Q22019 performance and a materially reduced guidance for volumes and margin for 2019. The company also provided a somewhat more cautious outlook for production volumes in 2020, although they gave specific guidance for revenues. However, Aston has guided that there will be a significant improvement in free cash flow in the second half of the current year following high cash burn in the first half. We estimate that the company will end the current year with net leverage of c.3.2x (previous estimate 2.9x) after taking account of projected cash balances of c.£180mn at end December 2019 (versus £127mn at end June 2019). Next year’s performance will be largely dictated by the launch of the new SUV model DBX which is expected to boost revenues and EBITDA; the launch remains on track for Q2 next year and initial estimates of demand are in-line with the company’s expectations according to Aston. While the guidance revision and performance outturn for Q22019 were disappointing, we remain comfortable holding the company’s 2022 secured notes on a bid yield of 9.2%. Aston bond continue to benefit from decent asset coverage (equity market capitalisation of £1.2bn versus estimated FY2019 net debt of £720mn) and the launch of the DBX next year has the scope to considerably improve the company’s fortunes. The MTNLN 6.75% January 2023 (“Matalan”) secured notes was another notable detractor with a negative contribution of -8bps following the company providing negative guidance for its Q2 numbers. Matalan Q1 earnings were a little soft due to adverse weather and FX headwinds and management cautioned on current trading and margin pressures in Q2. Revenues in Q1 of £274m were up 2.4% on an lfl basis, with the trend deteriorating from +11.5% in March to +1.2% in April and -4.5% in May, although online sales remained firm at 28% yoy. Adj. EBITDA of £25m (pre-IFRS 16) was flat yoy but slighlty behind our £26m est. while the margin declined by just -20bp despite FX (c. -140bp) and markdown (c. -160bp) headwinds. However, management warned of significant dilution to Q2 margins due to deeper discounting in a challenging market and elevated inventory levels (+£25m yoy). Net debt and 1st lien/2nd lien leverage remained essentially flat with the previous quarter at £409m and 2.7x/4.0x respectively. Management repeated guidance for the extra trading week in Q2 which will add c. £20m to sales and c. £2m to EBITDA, but will have a c. -£18m adverse cash impact on FY20 due to the shift payment timings. We expect the company to finish the year with similar credit metrics to where it ended Q1; namely, that secured leverage will be around 2.7x. We are comfortable holding Matalan 2023 bonds on a bid yield of 10.6% given the company’s recent strong performance track record, comfortable liquidity and acceptable level of financial leverage. We urge investors to contact the investment team should they require any further information on any of the names appearing on the main performance list contributors table on page 1 of this report. Fund Developments Our sales team have remained busy meeting prospective investors in ACBF and we are confident of further inflows into ACBF over the remainder of this year. In this regard, we are pleased to report some small inflows in to the fund in July and a further inflow in early August; we are grateful for this commitment and intend to repay this trust via continuing to generate superior risk adjusted returns or all of our investors. We thank all of our investors for their continued support and may we wish everyone an enjoyable summer break. Lee Robinson and Philip Crate

Monthly Newsletter

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Risk Report* (USD Data)

Gross Summary Statistics

Since management restructuring: Jan 2016

ACBF UCITS

Annualised Volatility

+1.55%

Downside Deviation*

+1.26%

Skewness -0.35

Kurtosis 4.59

Min 1D Return -0.55%

Max 1D Return +0.57%

Max Drawdown -2.40%

Sharpe Ratio 2.90

July 2019

Annualised Volatility

+1.11%

Skewness -0.51

Kurtosis 0.78


Max 1D Return 0.13%

Max Drawdown -0.19%

Sharpe Ratio ** 0.42

Correlation with S&P 500:

1 Month 0.12

3 Month 0.38

All 0.23

Drawdown

ACBF UCITS Strategy Histogram of Daily Returns

*Using Gross Daily Performance Data

**Strategy figure shows the performance of ACBF UCITS (since 05/2014 launch). Please refer to Appendix I – Strategy performance graph and risk report since fund inception

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Dec/15 Apr/16 Aug/16 Nov/16 Mar/17 Jun/17 Oct/17 Feb/18 May/18 Sep/18 Dec/18 Apr/19

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

-0.90%-0.75%-0.60%-0.45%-0.30%-0.15% 0.00% 0.15% 0.30% 0.45% 0.60% 0.75% 0.90%

Market Cap (USD mm) / Sector

Sector Avg Market Cap (USD mm) % NAV Basic Materials 8,293 2.1%

Communications 16,749 7.5%

Consumer, Cyclical 3,583 12.8%

Consumer, Non-cyclical 11,161 4.9%

Energy 11,861 10.6%

Financial 10,218 17.3%

Industrial 1,181 5.0%

Utilities 13,753 0.9%

Total 8,891 61.1%

Monthly Newsletter

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Portfolio Overview

Sector Exposure 1 Financial 28.59% 6 Industrial 4.47%

2 Consumer, Cyclical 20.28% 7 Basic Materials 2.14%

3 Energy 15.44% 8 Utilities 0.93%

4 Communications 12.76%

5 Consumer, Non-cyclical 9.10%

Top Ten Countries Top Issuers 1 United Kingdom 49.72% 1 INMARSAT PLC 3.72%

2 United States 13.88% 2 EI GROUP PLC 3.70%

3 Norway 3.59% 3 PREMIER FOODS FINANCE 3.03%

4 Netherlands 3.49% 4 RBS CAPITAL TRUST II 2.88%

5 UAE 3.06% 5 CASINO GUICHARD PERRACHO 2.54%

6 Canada 2.90% 6 STONEGATE PUB CO FIN PLC 2.25%

7 France 2.54% 7 TESCO PERSONAL FINANCE 2.23%

8 Germany 2.37% 8 TVL FINANCE PLC 2.20%

9 Jersey 2.07% 9 MATALAN FINANCE PLC 2.10%

10 Spain 1.65% 10 ASTON MARTIN CAPITAL HOL 2.07%

Top 10 26.72%

Top 20 45.27%

Top 35 59.85%

Rest 24.89%

Duration Portfolio Duration 0 to 1 29.71% Modified Duration 1.53

1 to 2 13.19% Credit 1.18

2 to 3 21.36% Bonds 1.96

3 to 4 15.98% Sovereign Futures 0.00

4 to 5 -2.36% Corporate Derivatives -0.78

5 to 6 -1.96% Interest Rates 0.35

6 to 7 0.77% Bonds 0.35

7 to 8 1.23% Sovereign Futures 0.00

10 to 11 2.88% Corp Derivatives 0.00

Yield Range Table Ratings Yield < 12 months to

maturity

12-24 months to maturity

> 24 months to maturity

0 to 4% 0.30% 0.16% 0.41% BBB+ 0.21% B+ 10.54%

4 to 6% 0.16% 0.38% 0.22% BBB 2.18% B 31.51%

6 to 8% 0.25% 0.00% 1.25% BBB- 11.90% B- 10.41%

8 to 10% 0.00% 0.08% 1.01% BB+ 11.33% CCC 0.77%

>10% 0.59% 0.00% 0.96% BB 8.84% NR 9.80%

WAY (Weighted average yield): 5.1% BB- 5.38%

Monthly Newsletter

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Appendix I – Strategy performance graph and risk report since fund inception

ACBF (subsequently ACBF UCITS) vs. benchmarks USD

Risk Report* (USD Data)

Gross Summary Statistics Since Inception of the Fund

ACBF UCITS Annualised Volatility 3.82%

Downside Deviation* 2.71%

Skewness -1.35

Kurtosis 13.60


Max 1D Return 1.69%

Max Drawdown -17.67%

*Using Gross Daily Performance Data

Daily Returns

Drawdown

ACBF UCITS Strategy Histogram of Daily Returns

For any further information, please contact [email protected].

0.950.970.991.011.031.051.071.091.111.131.151.171.191.211.231.251.271.291.311.33

Altana Corporate Bonds Fund UCITS HF Credit Index Altana Corporate Bonds Fund BARCLAYS Global Investment Grade Index

-0.05%

0.00%

0.05%

0.10%

0.15%

0.20%

01 02 03 04 05 08 09 10 11 12 15 16 17 18 19 22 23 24 25 26

-20.0%

-18.0%

-16.0%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

0

0.05

0.1

0.15

0.2

0.25

0.3

-0.90% -0.75% -0.60%-0.45% -0.30% -0.15% 0.00% 0.15% 0.30% 0.45% 0.60% 0.75% 0.90%

mailto:[email protected]

Monthly Newsletter

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Disclaimer: This report is prepared by Altana Wealth Limited (“Altana”) , which is authorised and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom (FRN: 532912). The Altana Corporate Bond Fund (“ACBF”) is managed by Altana Wealth Limited and is a Sub-Fund of Altana UCITS Funds Plc an investment company with variable capital incorporated with limited liability in Ireland with registered number 540012 and established as an umbrella fund with segregated liability between sub-funds pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities).collective investment in transferable securities under Directive 2009/62/EC. The Fund is a recognised scheme for the purposes of section 264 the Financial Services and Markets Act 2000 of the United Kingdom. Most of the protections provided by the United Kingdom regulatory system, and compensation under the United Kingdom Financial Services Compensation Scheme, will not be available. The contents of this factsheet are directed only at persons who would be defined as Professional Clients and Eligible Counterparty clients under the rules of the FCA rules. The services provided by Altana are only available to persons classified as Professional Clients and Eligible Counterparties (as defined in the FCA rules). As such, no reliance should be placed on anything contained in this factsheet by persons other than Professional Clients and Eligible Counterparty clients. In particular, persons who are Retail Clients (as defined in the FCA rules), should not act or rely upon the information provided in this factsheet and the services referred to herein will not be available to such persons. They are advised to contact their Financial Adviser. This document is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. It is the responsibility of every person reading this factsheet to satisfy himself as to the full observance of the laws of any relevant country, including obtaining any government or other consent which may be required or observing any other formality which needs to be observed in that country. This document does not constitute an offer to sell, solicit or buy any investment product or service, and is not intended to be a final representation of the terms and conditions of any product or service. The investments mentioned in this document may not be suitable for all recipients and you should seek professional advice if you are in doubt. Clients should obtain legal/taxation advice suitable to their particular circumstances. This document may not be reproduced or disclosed (in whole or in part) to any other person without our prior written permission. Although information in this document has been obtained from sources believed to be reliable, Altana does not represent or warrant its accuracy, and such information may be incomplete or condensed. All estimates and opinions in this document constitute our judgment as of the date of the document and may be subject to change without notice. Altana will not be responsible for the consequences of reliance upon any opinion or statement contained herein, and expressly disclaims any liability, including incidental or consequential damages, arising from any errors or omissions. The value of investments and the income derived from them can fall as well as rise, and you may not get back the amount originally invested. Past performance is no indicator of future performance. Investment products may be subject to investment risks, including but not limited to, currency exchange and market risks, fluctuations in value, liquidity risk and, where applicable, possible loss of principal invested. The information contained in this document is merely a brief summary of key aspects of the Fund. More complete information on the Fund can be found in the prospectus or key investor information document. These documents constitute the sole binding basis for the purchase of Fund units. Issued by Altana Wealth, August 2019.

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