Return to flip book view

RMB Fund Commentary June 2021

Page 1

Eurizon SLJ Bond Aggregate RMB (Renminbi) Fund Monthly Commentary June 2021

Page 2

For professional investors only

Page 3

For professional investors only Overview The fund offers exposure to the world’s second largest bond market. It invests in a diversified set of Renminbi-denominated debt instruments traded on the China Interbank Bond Market or in other regulated markets in China and Hong Kong. Key points: We focus on the most liquid and highly rated bonds in our universe. Our risk aware approach aims to deliver growth over the medium to long term. Our diverse team have a deep understanding of the culture, policies and market they invest in. All team members, whilst based in London, are Mandarin speakers having lived and worked in China. We have a research led approach which is based on our original macroeconomic research. Our understanding of economic mega trends, currencies and the place China has in global markets is complimented by our active bottom up analysis. Meet the team The Investment, Advisory & Research team share a strong collaboration ethic. This allows a constant stream of information on macro, economic and monetary themes leading to interesting investment ideas and opportunities. Based in London, our team is extremely diverse in terms of cultural and professional background. Most of our portfolio managers are originally from the emerging markets and speak local languages, having lived and worked in these countries. This provides us with the unique combination of being able to understand the local culture, whilst also applying the global context of how the outside world views these markets. Monica Wang Lead portfolio manager Stephen Jen Lead portfolio manager Wenting Deng Assistant portfolio manager

Page 4

For professional investors only Performance and portfolio update The fund performance in June was 0.75% gross (0.70% net) in GBP. Both the net return since inception and the year to date net return were +3.48% in GBP. In June, the Chinese bond yields rose, in a bear steepening, mainly due to the increase in incremental supply of the government bond issuances. We took the opportunity to increase our duration to 7.64 years, which is about 0.6 years higher than that of the fund’s benchmark, consistent with our expectation that decelerating economic growth in H2 will lead to an eventual decline in yields. For the fund’s credit holdings, we continued to stay in the most highly rated corner of the market. We are currently flat on FX exposure to be conservative, but we believe the EUR has likely topped out, and that the GBP, the CNY and the USD will outperform the EUR in the months ahead.

Page 5

For professional investors only

Page 6

For professional investors only Stable slowdown on the 100th anniversary of The Communist Party of China. Macro data since February has painted a picture of China’s economy topping out and beginning to decelerate sequentially. Manufacturing and consumption have continued to recover from the setback experienced in 2020. We think this trend should persist as Beijing gives more weight to financial stability than top line economic growth. For our fund, this outlook should mean a lower bond yield in the months ahead, probably for the rest of the year. Structural reform continued. The Chinese central bank has been guiding the real loan rate lower, in an aim to reduce the real financing cost faced by the small and medium-sized enterprises (SMEs). The recent adjustment of the floating deposit rate’s upper limit reflected the same intention. The adjustment has widened the net interest margin of the smaller banks, whereby they would have more room to lower their loan rates to support SMEs. In addition, the new rule for the cash management products of commercial banks and wealth management companies clarified the maximum duration of the bond holdings and the lowest credit ratings for the credit holdings, aiming to reduce the risks of this type of product. In a nutshell, China is exhibiting a higher tolerance for a steady deceleration of the economy in exchange for an acceleration in the structural reforms. Against this backdrop, with lower overall interest rates engineered by the People’s Bank of China (PBoC), coupled with a decelerating economy, and a limited pass-through of PPI to CPI, we believe the opportunity for Chinese bond yields to head lower in H2 seems high. Bouts of surging bond supply provided oppo rtunities to add duration. The long-awaited government bond issuance finally started to materialise in June, which pushed the bond yields up by 5-10 bps along the curve. However, the PBoC resumed net injection of liquidity to the banking system via open market operations for the first time in four months, which proved the central government’s commitment to maintaining balanced and steady liquidity, and in turn, bolstered the market sentiment. In the coming months, as the quotas for both government bonds and local government bonds have not been fully utilised, the accelerating bond supply could bring some volatility to the bond market. However, we think these prospective market fluctuations should be transitory and temporary. We will continue to use these opportunities to extend duration, as we have done in recent weeks.

Page 7

For professional investors only

Page 8

For professional investors only

Page 9

For professional investors only Bottom line. The surging bond supply brought some turbulence to the bond market in June, providing us with a good opportunity to add duration. As the activity data continue to point to a sequential growth deceleration, coupled with the central banks’ guidance for real interest rates to edge down, we expect the bond yields will likely head lower in the second half of 2021. With this view, we will continue to add duration. We maintain our cautious view on credit and will stay in the most highly rated part of the Chinese onshore bond market. On the currency front, we believe the EUR has topped out and has entered the downward moving range, while the GBP, the CNY and the USD, will outperform. We welcome comments or feedback

Please use the contact form below if you have any questions or comments about the content contained within this report.

send

Page 10

For professional investors only Further information Useful links Visit our website for more insights & details about our strategies www.eurizoncapital.com/UK Further information Useful links Sales & Business Development Matt Jones, Head of Distribution Email: matthew.jones@eurizonslj.com Mobile: 07716 639835 Business address Eurizon SLJ Asset Management 90 Queen Street London EC4N 1SA Fund Information Umbrella Name Eurizon Funds ICVC Fund Name Eurizon SLJ Bond Aggregate RMB (Renminbi) Objective The objective of the Sub-fund is to provide capital growth by achieving a return after fees in excess of the return of the Bloomberg Barclays China Treasury Total Return Index over any five-year period. Benchmark Bloomberg Barclays China Treasury Total Return Index. The Sub-fund’s investment process is not constrained by the Index and the composition of the Sub-fund’s portfolio may deviate from the Index in a significant way. Accordingly, the Sub-fund’s returns could be similar to or different from the Index. Regulatory Status UK UCITS Fund Managers Monica Wang, Stephen Jen Share Class Information Currency Acc/Inc Annual Management Charge Minimum Investment Wholesale GBP Acc 0.50% £1,000,000 Wholesale EUR Acc 0.50% £1,000,000 Institutional GBP Acc 0.35% £10,000,000 Institutional EUR Acc 0.35% £10,000,000 Founder GBP Acc 0.25% £1,000,000 Founder EUR Acc 0.25% £1,000,000

Page 11

For professional investors only Key Risks Charges from capital The fund charges are taken from capital invested. Taking charges from capital has the effect of increasing the yield, whilst also negatively effecting the growth potential of the investment. Chinese securities The fund invests in financial instruments dealt in on the local Chinese markets, including on the CIBM, and denominated in Renminbi may imply specific regulatory, exchange rate, repatriation and tax risks are detailed in section 5.40 of the Prospectus. Counterparty risk The fund carries the risk that a third-party with which the Sub-fund entered into contracts in order to perform some operations may default on its obligations. Credit risk The risk that the issuer of debt instruments fails to pay to the Sub-fund interests and principal, even only in part. Liquidity risk The risk that the sale of the financial instruments in which the Sub-fund invests may be difficult depending on the features of these instruments themselves and/or on the market conditions when the sale is to be executed or on the lack of a sufficient number of potential buyers. The selling price may then be less than the value of a financial instrument. Geopolitical risk The risk related to the investments in geographic areas that may be sensitive to any event of economic, geopolitical or regulatory nature or any other events beyond the control of the Management Company that could expose the Sub-fund to losses. Exchange rate risk Changes in currency exchange rates may affect the value of your investment. Concentration risk The price of funds that invest in a reduced number of holdings, sectors, or geographical areas may be more heavily affected by events that influence markets and increase volatility. Past performance is not a reliable indicator of future returns. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. For professional clients only. This is a financial promotion and is not investment advice. The Eurizon SLJ Bond Aggregate RMB (Renminbi) fund is a sub-fund of Eurizon Funds ICVC, an open-ended investment company with variable capital with segregated liability between sub-funds. The Company is an investment company with variable capital incorporated with limited liability and registered in England and Wales under registered number IC027300. It is a UCITS scheme as defined in COLL and an umbrella company for the purposes of the OEIC Regulations. The Authorised Corporate Director (ACD) is Eurizon SLJ Capital Limited, authorised and regulated by the Financial Conduct Authority, with firm reference 736926. For more information on the fund, or the risks of investing, please refer to the Prospectus or Key Investor Information Document (KIID), available via the relevant fund information page on www.eurizonsljcapital.com/rmb-bond-fund/ Issued in May 2021 by Eurizon SLJ Capital Limited, 90 Queen Street, London, EC4N 1SA. Authorised and regulated by the Financial Conduct Authority, with firm reference 736926. ESLJ-060721-FC4

Page 12