Norvik EM High Yield Bond Fund, May 2018


The value of Norvik EM High Yield Bond Fund shares has fallen by 2.81% down to $1,060.7 since the beginning of the year. The fall on the market of emerging countries’ bonds (EM) has become one of the main trends of the beginning of 2018. The dynamics of the Fund’s yield – Bloomberg Barclays ЕМ High Yield index, which has fallen down to 4.1% since the beginning of the year, is a confirmation to this. Thus, the index Barclays ЕМ High Yield has returned to the price level as it was by the moment when our Fund was established, which has increased by 6.1% since the foundation (7.5% yearly).

Revaluation on the high-yield securities market of the emerging countries (EM) started in the beginning of February after the data of the US labour market were published. This stimulated a drastic jump of volatility, which has been on the record-low levels over the last year. By the end of February, certain stabilization took place, but in the second half of April, the active growth of the US dollar began, which caused the decrease of the EM securities. Steady increase of the FRS base rate, the fact that the US 10-year debt (UST) yield reached the level of 3% (the maximum since 2014) as well as 3-month US LIBOR growth by 37.5% since the beginning of the year became the cause of such a growth for the US dollar.

As we have pointed in the final review on the fund over the last year, the influence of the US dollar on the EM market is still high. The currencies of the emerging countries on average have depreciated against the US dollar by 7.2% since the beginning of February. We remind that from 2013 to 2015 the US dollar grew by 25% against the basket of currencies. According to the agency Morningstar, by the same period, funds investing into the emerging markets on average lost 23% over the two years. Currently, such dynamics will hardly repeat. The dollar index grew only by 5.7% since February and by 1.2% since the beginning of the year. Among other risk factors, we would point out the geopolitical tension, especially in the Middle East. However, given the absence of fluctuations on the UST market as well as hostile rhetoric from the FRS leaders concerning stiffening the monetary policy, we expect that in the near weeks the situation on the market of bonds of the emerging countries will become stable.

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