Monthly Commentary April

GAM Star Credit Opportunities (USD)

In April, we saw an improvement from the “risk off” adjustments experienced during the first quarter of the year. Market sentiment is still relatively soft, the US Dollar 10-year interest rate increased from 2.74% to 2.96% and the fund reported a small decline.

During the month, we were active both on the primary as well as secondary market. For example, we participated to the new issue of Zurich insurance, a Tier 2 security rated “A” by S&P. The coupon is fixed at 5.125% up until 2028 and then if not called, resets every 5 years based on outstanding swap curve plus the initial spread of 326bps. As 10-year interest rates have risen to around 3%, we believe the fixed rate holdings in our fund, including many fixed-to-floater securities which give yields of well over 5%, such as the HSBC contingent capital notes, represent good value. For our floating rate notes, higher short-term rates are also clearly a benefit.

The fundamental results of our companies, both the banks and insurers, continue to show progress in the multi-year process of capital strengthening. This reinforces their value within the context of historically wide credit spreads. The income offered by our portfolio continues to provide an attractive return and the fund is well positioned for an environment of potentially higher rates by owning more than 50% in fixed-to-floater securities, almost 15% in discounted floating rate notes, as well as a number of high coupon securities with relatively short issuer call dates. There remain a wide number of securities where it is possible to lock into attractive yields going forward.

 

GAM Star Credit Opportunities (GBP)

In April, we saw an improvement from the “risk off” adjustments experienced during the first quarter of the year. Market sentiment is still relatively soft but the fund was able to make small capital gains, in an environment where yields on UK Gilts increased by 8bps to 1.43%.

We participated in two new issues during the month, which both had investment grade ratings of BBB-. The first issue was 4.478% Quilter 2028 which has a call and a reset in 2023. The issue was to finance the takeover of the Old Mutual wealth management business. The second issue was Phoenix subordinated debt rated BBB-. The coupon is fixed at 5.75% up until 2028, and then if not called, resets every 5 years based on the outstanding swap curve plus the initial spread of 417 bps.

Otherwise in the secondary market, investments have been made in a variety of holdings including US dollar investments in 6.625% Leucadia 2043 at 107% and 4.75% Julius Baer contingent capital securities at 94% which have an interest reset in 2024.

The fundamental results of our companies, both the banks and insurers, continue to show progress in the multi-year process of capital strengthening. This reinforces their value within the context of historically wide credit spreads. The income offered by our portfolio continues to provide an attractive return as well as some potential for capital gains.

GAM Star Credit Opportunities (EUR)

In April, we saw an improvement from the “risk off” adjustments experienced during the first quarter of the year.

Market sentiment is still relatively soft but the fund was able to make small gains in spite of a rise in the 10-year German bund rate from 0.49% to 0.58%.

During the month, the fund participated in several new issues denominated in euro, including fixed-to-floater securities 4.25% KBC Group with an interest refix in 2025 and 5.75% Deutsche Pfandbriefbank with an interest refix in 2023. We also invested in the investment grade rated bonds of German company, Grand City Properties, as well as investment grade issues from Phoenix and Aegon.

Within the secondary market, a wide variety of securities was purchased at attractive levels. Yields remain well above 4% for many of our holdings and the fund is well positioned for an environment of potentially higher rates by owning more than 50% in fixed-to-floater securities and almost 15% in discounted floating rate notes, as well as a number of high coupon securities with relatively short issuer call dates.

There remain a wide number of securities where it is possible to lock into attractive yields going forward.

 

More News & Views