European High Yield Bond Portfolio (EHYBP)


Investment Objectives

The economic storm in Europe has increased volatility in the region’s credit markets, and magnified the divergence intra sector within local markets. The European high yield space is a smaller but faster growing market than in the US, increasing at over 25% per year in volume terms, which creates a more diversified universe. This growth has also created mispricing opportunities in individual credits that are not well understood by market participants.

Credit Selection

Fundamental and market-based selection approach through proprietary research and deep understanding of the European markets. The experienced Butler team is solely dedicated to this niche space and has a real edge in this market where less than 50% of the outstanding issuance is covered by brokerage research. In order to understand a company’s idiosyncratic risk, an investor must also have an intricate understanding of the local laws, covenants, cultural differences, history of management teams, corporate governance and colour on other market participants. These are areas in which Butler have the ability to add real value to managing portfolios of fixed income instruments.

Risk Management

This team believes that the opportunity lies in both bottom up-fundamental credit picking as well as taming volatility throughout the cycles. This portfolio will be long bias with risk actively managed via cash, credit and duration allocation as well as tail hedges. The team’s philosophy is to manage market exposure through active trading and portfolio repositioning.

April 30, 2018 Update

NAV 126.0006* · MTD* -0.46%  · YTD* 0.10%

From the 30th April 2018 to the 28th May 2018, the European High Yield Bond Portfolio returned -0.46% net, outperforming the iBoxx Eur Liquid High Yield index by 0.22% over the period. Year-to-date, the performance is 0.10% net and the outperformance against the index is 0.76%. While May was not short of market-sensitive events (mounting liquidity pressure on Argentina and Turkey and the US exiting the Iran nuclear deal while sticking to their aggressive stance regarding trading relationships), the biggest market mover proved to be Italian events. Conversely to widely-held expectations, the 2 populist parties who led the polls in the March 4th general elections gradually agreed on a governing platform, highly confrontational with most of Italys European partners. Because of increased volatility, the primary market calmed down dramatically, and we only participated in the Chemours (US Chemicals) new issue. Top performers were Cma Cgm (French Shipping, +0.5pts), Altice (French Cable, +0.4pts), and OCI (US Chemicals, +0.0pts). Underperformers were Diversey (US Industrial Services, -6.5pts), Senvion (German Wind Sector, -5.7pts), and Almaviva (Italian IT Services, -5.3pts). Part of our outperformance vs the Index was derived from our reduced market exposure, which we want to keep for the time being, since we are sceptical that news flow from Italy will remain benign.

 

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Fund Identification

ISIN: IE00B9HJT617

Bloomberg: SIGEHYA ID Equity

Telekurs: N.A.

Sedol: B9HJT61

Sub-Investment Manager

Butler Investment Managers Ltd.