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Please note past performance should not be used as a guide to future performance, which is not guaranteed. Investment Managers funds should be considered a long term investment. The value of your investment may go down as well as up. There is no guarantee that you will get back the amount you originally invested.
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Latest Fund Manager commentary:
To characterize the monthly array of economic statistics during April in any other
manner than less than expected, arguably misses the point. Whether the root cause
lay in higher gas prices at the pump or some form of “payback” for the above normal
temperatures experienced across most of the country in January and February, it was
clear that the current course of the economy is progressing at a rate that is insufficient to accomplish the Federal Open Market Committee’s growth objectives. To that end, and with much debate back and forth, there appears to be a consensus belief amongst
investors, strategists and pundits that the Federal Reserve does indeed stand ready, if
economic conditions deteriorate markedly, to deploy additional balance sheet resources
as necessary. All of which charged investors throughout the month with weighing the
value of the “Bernanke put” against the deteriorating southern Europe fiscal austerity
programs.
April was very much a reversal of March trends, led by a strong rally in Treasuries
following disappointing U.S. payroll data and ongoing European sovereign risks;
nevertheless, the Merrill Lynch U.S. High Yield Master II Index performed well,
returning +1.02% during the month. Notably, strong quarterly earnings paired with
deteriorating macro sentiment led to the unusual combination of falling Treasury yields,
higher volatility, relatively flat equity performance, and lower high-yield bond and loan
yields. Most of April’s weakness occurred early in the month following the weak March
payroll report and the release of the Fed minutes, which led to the rally in Treasuries;
however, markets found their footing later in the month behind strong quarterly earnings and a solid primary market with 42 new issues totaling approximately $21.2 billion. April did however mark the first month in 2012 for High Yield mutual funds to experience outflows, though fairly minimal at only $10 million.
The High Yield Index outperformed riskier asset classes, including U.S. Equities
(S&P 500 returned -0.63%), but underperformed higher quality asset classes,
including Treasuries (U.S. 7-10 Year Treasury Index returned +2.44%) and the U.S.
Corporate Index (+1.28%). Similarly, within the High Yield Index better quality BB- and
B-rated credits (+1.09% and +0.99%, respectively) outperformed the riskier CCC-andlower-rated credits (+0.92%). Nearly all sectors reported positive total return in April, with Insurance as the exception, returning -0.14%. Top performers for the month included Automotive, Financial Services, and Basic Industry, which returned +2.32%, +2.00%, and +1.15%, respectively. The par-weighted default rate increased modestly to 2.17%, up from last month’s revised 1.92%. After widening to a high of 7.39% in the first two weeks of April, the High Yield Index yield-to-worst tightened 31 bps to end the month at 7.08%, 15 bps tighter than the previous month. Despite a lower yield-to-worst, the Option Adjusted Spread widened by 5 bps to 604 bps due to the strong rally in Treasuries. Finally, the average price of the market increased $0.39 to $101.67 at month-end.
AXA IM’s core unconstrained high yield fund outperformed the broad High Yield
market during the month of April. The fund benefited from positive security selection
during the month, particularly within the higher yielding portion of the market. This was
slightly offset by an underweight positioning in the better quality, more interest rate
sensitive part of the market, which performed well alongside the rally in treasuries. In
addition, cash holdings in a rising market also had a slightly negative impact performance. Good performance in the new issue market helped to offset the cash drag
during the month.
From a sector positioning perspective, the fund benefited from an underweight positioning to the Telecommunications sector, which was the second worst performing sector behind Insurance. The fund also benefited from positive security selection in the Utilities sector due to a lack of ownership in some of the highly levered capital structures in that space. Offsetting this was negative security selection in the Automotive sector, where an underweight positioning in the better quality capital structures had a negative impact on relative performance.
The fund is still committed to a barbell positioning by maintaining a relative overweight
position to the most defensive, short duration segment of the market as well as an
overweight position to the more equity-like, highest yielding portion of the market. With
our constructive view on credit fundamentals, we believe the equity-like portion of the
market will continue to outperform while the high yield market remains an attractive asset class. Our overweight in the more defensive, shorter duration portion of the market will lower the volatility of the fund and help to minimize declines in the market from European headline risk. The fund maintains its underweight position within the lowest yielding, more interest rate sensitive portion of the high yield market. The fund will continue to participate in the very active primary market to provide incremental risk-adjusted positive returns to the fund.