Mechelany Advisors' BOND PORTFOLIO Mechelany Advisors’ BOND PORTFOLIO was structured in 2020 for clients wanting to benefit from a EURO-based high yielding portfolio using a leverage of one to one and generating 14 % income per annum.
Mechelany Advisors’ BOND PORTFOLIO is up +39.32 % at the end of January 2021, after 10 months of management, considerably outperforming Bond benchmarks and its own performance target of 14 % per annum.
The portfolio added another 3 % in January 2021 alone.
In money terms, the initial EUR 3’000’000 investment has now turned into EUR 4’179’000 adding EUR 1’179’000 of net profits.
We fully benefitted from the very sharp appreciation of corporate and high yield bonds over the past 10 months and have taken pour capital gains gradually through our regular re-balancing exercises.
The risk structure of our portfolio has now changed considerably with :
. cash levels having risen to 72 % of the total assets, matching our borrowings
. The proportion of AAA – Government and Investment grade bonds having risen to 80 % of the invested assets against only 21 % for the lower investable credit ratings.
. At this stage, the portfolio is tilted towards the US dollar and we are not hedging our currency risk for now.
In February 2021, we have made the strategic decision to re-invest in US Treasury bonds to the tune of US$ 3’000’000 evenly spread between 10, 20 and 30-year tenors as we expect the recent back-up in yields to be temporary.
We have also reduced further our exposure to Corporate bonds and bailed out entirely of CoCo Bonds, taking significant profits and de-risking the portfolio as we expect the credit spread tightening that has taken place over the past few months to end soon.
As can be seen from the charts below, spreads are now plateauing at record low levels and we feel that the bond markets are not pricing in the risks associated with further lockdowns and an end to the 2020 exceptional protective measures.
WE EXPECT VOLATILITY TO COME BACK TO THE FINANCIAL MARKETS VERY SOON AND CREDIT SPREADS TO WIDEN SHARPLY IN COMING MONTHS.
Strategically, we are waiting for a pullback in the value of the Chinese Yuan against the US dollar to start accumulating Chinese Government bonds as we see those now offering value from an absolute macro-economic standpoint.
We shall probably increase our exposure there next month.
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