Latest Fund Manager commentary:
At the beginning of the month, the credit markets continued the rally that began in April following the statement by the ECB. At the last monetary policy meeting, the ECB decided to drop its principal official lending rate for the first time since July 2012. Although this decision was largely anticipated in light of the deterioration in macroeconomic conditions, all eyes were turned towards unconventional measures aiming to facilitate financing conditions for SMEs and to re-establish the transmission of monetary policy in general. The ECB committed to maintaining an accommodative policy for as long as is necessary, in particular by extending the current terms and conditions for refinancing operations, for at least the next 14 months. Then, after the middle of May, high-beta peripheral stocks widened slightly, in line with the Italian and Spanish sovereign debts. This slight widening enabled the credit market to pause for breath after a strong outperformance posted since the beginning of April.
Lower Tier 2 financial debts and corporate debts issued from core countries outperformed the index. However, Tier 1 debts and senior financial debts posted an underperformance against the benchmark index. We maintained the same exposure to credit within the portfolio as in April, remaining overweighted in subordinated financials, peripheral debts and private sector hybrids. We also added sovereign risk via Bonos and BTP, which weighed on our performance since these sovereign debts widened over the month.
We participated in some primary issues including the Société Générale Lower Tier 2, RCI Banque, FCE Bank and Caixabank.