Monthly Funds Commentaries (November 2017)

GAM Star Credit Opportunities (USD), GAM US Dollar Special Bond Inc.

Following the significant gains made in previous months the results for November posted a marginally higher value.

There were price gains in most of the floating rate notes and a mixed performance from the fixed rate bonds.

During the month, we participated in two new contingent capital issues including 5.125% BNP and 6.125% Banco Bilbao Vizcaya both of which have interest resets within 10 years.

We also participated in the 5.375% Citadel 2023 issue which is rated BBB. Otherwise additions were made to many different existing positions in the secondary market including  to HSBC and Lloyds Bank contingent capital securities, old Standard Chartered floating rate notes trading at around 90%, 7.875% Friends Life (Aviva) yielding over 2% to the next call date within one year and others.

We seek to maintain a good balance between fixed rate, fixed to floating rate notes, discounted floating rate notes as well as securities with relatively short call dates as we prepare ourselves for the possibility of rising rates.

GAM Star Credit Opportunities (GBP), GAM Sterling Special Bond Inc.

The fund posted positive gains in the month of November as there were price rises in the majority of holdings.

A wide variety of investments were made during the month including further acquisitions of contingent capital securities of Barclays, HSBC and Lloyds Bank, where there is a yield over 5% for a relatively short duration. In small size we have also continued to add to older fixed rate securities with yields between 5% and 6%.

In late November we participated in the new issue 4 ¾% Direct Line subordinated securities with a call and interest reset in 2027, which was priced in early December. The fundamental results for our companies, both the banks and the insurance companies, continue to show progress in the multi-year process of capital strengthening. This reinforces their value in the context of historically wide interest spreads.

We continue to monitor the possibility of rising generic yields and have added to some of our short dated floating rate notes. However, we also expect that the income offered by our portfolio with its blend of fixed-rate, fixed to floating bonds and discounted floating rate notes will provide an attractive return as well as the potential for some capital gains.

GAM Star Credit Opportunities (EUR), GAM Euro Special Bond Inc.

Following the significant gains made in previous months the results for November posted a marginally higher value.

While many of our floating rate notes had further gains, there were mixed results from our fixed rate securities.

During the month a wide variety of holdings were purchased. Investments were increased in contingent capital fixed to floater securities in Banco Santander, HSBC and Lloyds Bank. We took advantage to participate in a dollar denominated tap issue for 6.875% Trafigura at a yield of 5.89% to the call date in March 2022, which we hedged back to Euro. We also added to our Euro holding of 6.5% Rabobank old undated securities at a price around 125%. At this level we like the income that it generates and we believe that the valuation is still very attractive.

The fundamental results for both our banks and our insurance companies continue to show progress in the multi-year process of capital strengthening. This reinforces their value in the context of historically wide interest spreads.

We continue to monitor the possibility for rising generic yields and have added to discounted floating rate notes of ING, Royal Bank of Scotland and Standard Chartered.

We continue to believe our blend of fixed-rate bonds, fixed to floating securities and discounted floating rate notes provides an attractive return as well as the prospect for capital gains.

 

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