Quarterly Multi-Asset Credit Fund Update – Q4 2019

Product updates and commentary in response to key market developments.

Performance review

The Fund delivered positive returns in the fourth quarter. Credit spreads narrowed, particularly in the high yield sector and hard currency EMD, resulting in strong returns from these exposures in the Fund. Returns were more muted for loans and securitised. Tactically, the defensive posture of the Fund, namely overweight to loans & securitised, was not rewarded due to the outperformance of high yield and hard currency EMD. However, this was partially offset by both an underweight to local currency EMD and a tactical GPB-hedge on a portion of that exposure.

  • Fed completed its mid-cycle adjustment. Dovish ECB, BoJ and BoE held rates. G4 10Y yields increased.
  • US IG credit, US high yield, EU IG credit and EU high yield spreads tightened on the back of trade optimism and dwindling Brexit uncertainty.
  • In Emerging Market debt (EMD), local EMD increased 5.2% whilst hard currency EMD (2.1%) also trended higher. Corporate EMD (2.2%) also posted positive returns over the period (USD terms).

Performance (%)

Average annualised returns

Russell Investments Multi-Asset Credit Fund Performance (%) 1 month 3 MONTHS Year to date 1 YEAR  3 YEARS 5 years Since inception
Return Gross of Mgmt Fee 0.5 0.7 5.8 5.8 2.4 --- 2.6
Return Net of Mgmt Fee 0.5 0.5 5.0 5.0 1.6 --- 1.8
Benchmark 0.1 0.2 0.8 0.8 0.8 --- 0.7

Source: Confluence. Data as at 31st December 2019. Inception: 31st May 2017. Any past performance figures are not necessarily a guide to future performance.

Portfolio review

Asset allocation

Sector Manager Q3 Weight Q4 Weight Style/Area of Expertise
Structured Credit TwentyFour 17.9% 17.9% European specialist; focusing on RMBS, CLOs and Consumer ABS
Voya 10.4% 10.4% Global specialist; specialising in CMBS, ABS, agency MBS and mortgage credit
High Yield DDJ 0.6% 0.4% US High Yield manager; focusing on issue selection in B/CCC areas
Barings 6.4% 6.5% Global High Yield manager; focusing on issue selection; benchmark aware
Hermes 6.2% 6.4% Global top-down approach. Emphasis on capital structure trades
Russell Investments 3.2% 3.2% US & European fallen angels, Intelligent Credit, active currency and rates systematic positioning strategies
Loans/CLO ICG 21.5% 21.5% Euro loans specialist; bottom-up focus, but will evolve the quality profile through the cycle
THL 11.3% 11.4% US Loans specialist. Value-driven research with proactive trading
EMD Hard DuPont 6.2% 8.9% Emerging Markets specialist. Value driven country selection, including local markets
Rothschild 3.5% 0.9% Emerging Markets specialist. Opportunistic total return
EMD Local MAN GLG 3.7% 2.7% Tactical trading approach; focus on currency and rates
Colchester 2.1% 1.6% Fundamental value-driven approach
Barings 2.4% 1.9% Value driven approach blending quant and qualitative inputs
Liquidity Russell Investments 4.5% 6.4% Fund-level liquidity reserve

Source: Russell Investments. Data as at 31st December 2019.

Personal Balance Sheet:A "risk-on" investor sentiment on trade deal hopes and a resilient US housing market, boosted US ABS (Voya). Across the pond, Prime Minister Boris Johnson's Conservative Party won a commanding majority in the UK general election. UK's Parliament then passed Johnson's amended Brexit Withdrawal Agreement, buoying European ABS (TwentyFour) – where positions in UK MBS and CLOs were positive.

Corporate Balance Sheet: Within high yield space, Hermes and the Russell Investments positioning strategy added meaningful value over the quarter.

The completion of the Fed’s mid-cycle adjustment policy served as a tailwind for US loans (THL), whilst a supportive ECB and moderating Brexit concerns, lifted European loans (ICG).

Sovereign Balance Sheet: Local currency EMD experienced positive performance in USD terms, however against a strong British pound, this exposure delivered negative returns. Active positioning within the hard EMD exposure rebounded back over Q4, due to overweight positions in Argentina, Ukraine and Egypt.

Fund changes and positioning

  • The strategy maintained a defensive posture through Q4, where an overweight position to loans & securitised assets prevailed. Correspondingly, the strategy maintained underweight exposures to high yield and EMD.
  • Technical factors including low implied-volatility levels and high speculative positioning in EM FX, caused us to reduce local currency EMD exposure. This in turn was moved to cash, where current cash levels now sit at around 6%.
  • The strategy also unwound all its long GBP vs. USD positions (which was used to change the local currency EMD exposure against the British pound - to instead be taken against the US dollar) on the back of pound strength following UK election results.
  • Overall the Fund posture is cautious and looking for either a moderate revaluation in risk asset prices and/or more robust signs of global growth to move back into a risk-neutral stance.

Watch points: Trade war re-escalation that damages global business confidence, investment spending and global supply chains. Central banks resume hiking if they believe growth risks have passed and inflation pressures are building. Progressive-left candidates (Elizabeth Warren or Bernie Sanders) elected as US president, with policies that would be bad for profits. Geopolitical risks, such as an aggressive China response to Hong Kong unrest that triggers global sanctions on China / actions by Iran that threaten global oil supply.


The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

Any past performance figures are not necessarily a guide to future performance.

The Fund may engage in securities lending arrangements in order to enhance its returns. This entails lending securities from the Fund portfolio to counterparties for a period of time in exchange for the deposit of collateral that the Fund may invest with the objective of earning additional returns. Such arrangements would expose you to additional credit risk of the counterparties to the securities lending contracts. In the event that a counterparty defaults on its obligations and/or the value of the collateral deposited falls below the value of the securities lent to such counterparty, this will negatively impact the NAV of the Fund