Performance Review 2006
Jean-Philippe Donge: "In developed markets, yields ended the year slightly higher in 2006, a year that was split in two different parts. The first half was marked by a rising trend in yields mainly due to higher inflation expectations. Then, during the second half we witnessed a more favourable market because of signs the economy was decelerating. Emerging Markets Debt performed strongly throughout the entire year."
Performance Review 2007
Jean-Philippe Donge: "Throughout the year signs of a decelerating economy in the US became more tangible. The Federal Reserve started decreasing its Fed Funds rate from the level of 5.25%, bringing it to 4.25% at the end of the year 2007. The Dollar also started depreciating against the Euro. The last three months of the year were nonetheless quite volatile for the Eurozone bond market with the ECB refusing to start decreasing its main rate due to inflation risks."
Performance Review 2008
Jean-Philippe Donge: "The Lehman Brothers Bankruptcy year: the worsening of the financial crisis and the confirmation of the recession in most developed markets underpinned the exceptional performance recorded by the Eurozone sovereign bond markets (mainly in Northern Europe). The yield of the 10 year German Bund decreased by 140 basis points through the year. Inflation decreased and the ECB had to lower its rate three times, bringing it from 4.5% to 2.5%."
Performance Review 2009
Jean-Philippe Donge: "The exceptional measures adopted by monetary and tax authorities led to an abrupt rush to the more risky assets early in the year. Corporate Bonds as well as High Yield papers started outperforming EMU sovereign bonds. This helps explain the underperformance witnessed on the fund during the entire year. The JPMorgan EMBI Global Diversified, for example recorded a 29.8% performance while the yield on the ten year German Bund increase by 130 basis points from 2% to 1.31%."
Performance Review 2010
Jean-Philippe Donge: "2010 will see the sovereign debt crisis start emerging. This will be mitigated by a series of measures taken to help stabilize the Greek situation as well as by signs of an improving economy worldwide. We also saw a dramatic increase in inflation in the Euro zone from less than 1% at the beginning of the year to almost 2.2% by end of 2010."
Performance 2011 - Year-to-Date
Jean-Philippe Donge: "The worsening of the situation on sovereign debt in South Europe as well as a deceleration of most developed countries economy has underpinned the performance of the Northern European countries bonds. The risks have been rising of a debt default in Greece with a negative impact on banks."
Performance since 2006
Jean-Philippe Donge: "We’ve witnessed a progressive dislocation of the financial markets during the last six years with a transmission of the crisis from the American subprime debt markets to the European financial sector with Sovereign in developed economies having to bear the brunt of the problems. This has been highly beneficial for the best rated issuers like the Northern Europe countries. Until mid of 2011, Emerging Markets Sovereign debts managed to withstand the crisis."
Investment Process and Strategy – How does the Fund Manager invest?
Jean-Philippe Donge: "The fund investment strategy is based on a core-satellite approach. The core portfolio of the fund is made off high grade European sovereign papers while the satellite portfolio will tend to optimize the allocation between Emerging Markets issuers. That strategy relies mainly on a top-down approach with the use of technical indicators to fine tune the performance."
Investment Outlook
Jean-Philippe Donge: "Until year end, we’ll see a continuity of the sovereign debt crisis in Europe. The EU will nonetheless do what it takes to stabilize the Euro. We’ll witness a temporary rebound of the economy in the US with a return by investors to more risky assets. In 2012 and 2013, we’ll have a normalization of the situation in Europe after maybe a worsening in Southern Europe. Yields have already decreased a lot. They might start rising again in the northern part of Europe, also, because those countries will have to participate to the Bail-out of the southern part of Europe thus, impairing their fiscal accounts."
