Context:The investment team consider the current valuation level on our securities very attractive as reflected by spreads, which are still very wide if only compared to end of year 2017, levels at which the team was considering getting closer to a fair value for our asset class.
Impact for the fund: Positive as the markets are showing strong momentum and spreads on our asset class are still very wide. This shows a potential for high capital gains going forward as it has been
The continuation of the multi-year process of capital strengthening for European financials makes us feel very confident in the strong and improving credit fundamentals of our issuers.
Although prices have continued to rally, spreads has tightened only 170 bps YTD which sets us on average at 1/2way towards the level of end of 2017 where we were feeling levels were getting closer to what we see as a fair value for our asset class.
We feel that current spreads (c390bps on AT1 CoCos for example) remain highly attractive and see further upside as well as continued high return contributions from income collected. Dovishness by central banks and a low rates environment bodes well for subordinated fixed income of financial sector. We feel the quality beta of our strategy is the right answer to the continuous geopolitical issues (Trade wars and Brexit) and uncertainty related to global growth i.e. high and steady income from strong issuers.
happening on a YTD basis.