Monthly Funds Commentaries (October 2017)

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

During October, the fund posted good positive results as income was supplemented by capital gains in a wide range of securities. For example the 7.875% Old Mutual 2025 were subject to a company buyback and increased over 5% in price.

Floating rate notes were also strong with a number of them rising in price between 2% and 5%. In addition, there were gains in some of the contingent capital securities with bonds of Credit Suisse, HSBC, and UBS rising by over 2%. During the month, we participated in the new issues of 4.25% Standard Life Aberdeen 2048, which has an interest reset in 2028 and 5.125% Puma 2024, the international petroleum stations company.

We also bought a wide range of bonds in the secondary market, including old floating rate notes of Australian and New Zealand Bank, Den Norske Creditbank, Nordea, Standard Chartered and Westpac in the low to mid 80% price range.

So our blend of fixed-rate bonds, fixed to floating rate notes and discounted floating rate notes continues to provide an attractive return as well as the potential for capital gains.

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

The fund posted gains during October to supplement current coupon income within the context of stable government bond yields.

A wide variety of holdings were purchased during the month including contingent capital securities of Barclays, HSBC and Lloyds Bank where the outstanding period to the next interest re-fix provides a yield over 5% with a relatively short duration. In small size, we have also added to older fixed rate securities with yields between 5% and 6%, which will be less affected by rises in government bond yields.

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 capital gains.

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

The fund posted good gains in October by virtue of price gains among both fixed rate and floating rate bonds.

During the month a wide variety of securities were purchased including both fixed rate and floating rate securities. Throughout the month investments were increased in contingent capital fixed to floater securities of HSBC, BBVA and Banco Santander.

Investments were also made in old Royal Bank of Scotland floating rate notes with an interest margin of 233bp over Libor at a price of around 97% and we added to our largest holding of 6.5% Rabobank old undated securities as the price increased towards 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 our companies, both the banks and the insurance, 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. For example, we have added both the Ageas and BNP Fortis issues which pay respectively three month Euribor +135bp and three month Euribor +200bp. They are priced at 62.8% and 86% respectively.

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

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