Income Generation / Total Return

7% p.a., net of fees

Daily

Luxembourg-regulated AIF

30 April 2020

Beauclerc Limited

Manager comment

Ending a string of seven negative consecutive weeks, the S&P 500 led the charge in a global rebound across risky assets late May. After being down approx. 20% from its peak, the S&P 500 trimmed its losses to -13.3% YTD, while the Euro Stoxx 50 and MSCI EM Equities slightly outperformed. In the meantime, US IG corporate bonds have registered their worst YTD start since the 80s, with a total return of -11.9% this year so far.

Market consensus has finally turned bearish in the past month, looking at stagflation, i.e. higher inflation and slower activity, as the central scenario in DM economies for 2022/23. For the moment, recession remains a worst-case scenario. The war in Ukraine and the subsequent surge in energy and food prices both remain the main catalysts for this central scenario, through weaker consumer confidence and spending. In addition, labour shortages and rising wages in the US are contributing to a profit margin squeeze that became more tangible in the disappointing Q1 earnings publications. As a result, GDP growth as well as earnings forecasts are being revised downward substantially, at the same time than the Fed is ramping up its hiking cycle and its aggressive hawkish rhetoric. Therefore, it is not surprising that this challenging configuration led to extreme defensive positioning of institutional investors and heavy oversold markets ultimately.

Equity markets entered a relief rebound late May and the real question is whether it is more than just a classic bear-market rally, i.e. the lows reached in May are in for the next quarters. Expectations that the Fed might be looking for a pause in its hiking cycle in September, on the back of abating inflation and a collapsing US housing market, do provide potential for more upside. A cease fire in Ukraine or the Chinese economic reopening could also extend the current rally further. Upcoming inflation reports and Q2 earnings season (mid-July) will determine how sustainable the current rebound is.

The Fund recouped its April losses ending May with a slightly positive return for 2022. The decline in equity volatilities driven by the equity rally late May lifted up volatility income note secondary valuations. Approx. 30% of the structured notes will expire in June, offering the opportunity to improve the risk positioning of the portfolio, should volatilities remain near current levels. As such, the residual downside protection will be raised significantly above the current 12%, with a refocus on DM equity indices as underlying. Finally, the Fund’s running income is back to 8.9% p.a. after recent reinvestments.

YTD

  • Cumulated Performance
  • Share class A

As of 31/05/2022

3 months

  • Cumulated Performance
  • Share class A

As of 31/05/2022

1 year

  • Cumulated Performance
  • Share class A

As of 31/05/2022

3 years

  • Cumulated Performance
  • Share class A

As of 31/05/2022

All

  • Cumulated Performance
  • Share class A

As of 31/05/2022