Mechelany Advisors' BOND PORTFOLIO was structured in April 2020 with the purpose of generating stable income for the long term, using a one-to-one leverage. The Bond Portfolio's base currency is EUR and it was initaited with a EUR 3'000'000 initial capital
Considering the sharp rise in bond markets worldwide, the tightening of risk spreads, the +29.34 % performance of our Bond Portfolio since April 2020 and our privileged scenario of a return of risks and volatility in coming weeks, we have decided to take our capital gains on some of the most volatile and lesser creditworthiness parts of our Bond portfolio.
Thanks to the massive intervention of the FED, and it will probably continue in the future, corporate bond yields and spreads have almost gone back to pre-COVID levels while almost all these companies are now saddled with even more debt.
We took our 43 % capital gains on our US Auto companies’ bonds, Ford and General Motors, that have been massively supported by the FED bond-buying program. We have serious doubts about the ability of these companies to survive without another Chapter 11 episode in the future and prefer to take our profits and reduce risk there.
The same applies to our French Auto issuer PSA whose bond delivered almost 17 % capital gain. These companies operate in a sector that will find it difficult to regain economic traction in the coming years.
We also took profits on the most fragile of our COCO bank bonds, Commerzbank and UNICREDITO, while keeping the others for their high yields.
New Asset Allocation
Our total Bond exposure has been reduced by EUR 1.4 million, bringing our total risk down to 137 % of the portfolio, with 77% in borrowings and 36 % in cash.
New Income / revenue structure
The income locked on the portfolio has come down from EUR 430’000 to EUR 347’000 per annum or a return of +11.60 % on invested capital.
But considering the fact that we have cashed in circa EUR 300’000 of capital gains already, it is as if we had earned almost a full year of income in advance.
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