Bellevue Global Income (Lux)

In August, the fund returned -0.57% with a volatility of 2.20%. The Bloomberg Global Aggregate EUR-Hedged Index lost 2.87% and the Bloomberg Global High Yield EUR-Hedged Index 1.39%. Given market uncertainty since inception of the fund on September 30, 2021, we have been investing gradually. This month, we raised the tactical cash allocation from 44% to 48%.

August started well but the confirmation of the Fed hawkish stance at Jackson Hole caused both risk-on and risk-off assets to correct rapidly. The main contributors to the fund performance were high yield bonds -0.01% and government bonds -0.56%. The high yield bond positions outperformed the Bloomberg Global High Yield Index thanks to the emerging market exposure which contributed positively. The government bond strategy was impacted by the 54 bps widening of the US 10 year treasury yield to 3.19%.

At the beginning of the month, we raised the high yield bond allocation from 43% to 45% by adding short duration EUR bonds in solid emerging market sovereigns (Colombia, South Africa). During the month, given the increasing market uncertainty, we took profits on the July additions and brought the allocation down to 40%. We end the month split between corporates 12%, financials 10% and emerging markets 19%. On government bonds, we stand at a 12% allocation, significantly below our neutral position of 50%. With the high volatility and potential double digit inflation, we still find them unattractive.

We amended the scenarios on August 18 as follows:

Scenario 1, weight 30%: Inflation peaks and interest rate expectations stabilize. Inflation will likely peak when the main commodity prices, such as oil, copper and wheat, fall back to more sustainable levels. Also, the supply chain disruptions caused by the Chinese COVID-19 lockdowns and the war in Ukraine are gradually being resolved. The Fed can be more dovish. This is positive for equities and high yield bonds, slightly negative for government bonds.

Scenario 2, weight 40%: Economic growth remains positive but corporate profitability deteriorates as operating margins fall. Inflation is likely to peak due to falling commodity prices, but at the same time becomes more entrenched at around 5%. Even though the world economy will not enter into a recession yet, equity markets consolidate. This is neutral to slightly positive for government and high yield bonds.

Scenario 3, weight 30%: The likelihood of a recession is increasing. Corporate operating margins fall. Energy supply disruptions in Europe are very likely this winter due to the shift away from Russian oil and gas. Inflation remains elevated and central banks cannot ease monetary policy aggressively. This scenario is negative for equities and high yield bonds. Government bonds remain in a negative trend, but can offer a good hedge in case of a market correction.