Dear friends and investors,
Performance Helped by China Fixed Income
The aggregated Acre fixed income portfolios across all clients up 10% in the month of April, recovering from the selloff in March. YTD performance stands at +1.8% vs the IBoxx Asia High Yield Index at -8.2%.
The strong performance of the accounts in April was mainly due to our focus on China-based bonds which were not only the most defensive in Q1 but also the first ones to rally strongly out of the market trough. They were relatively shielded due to government support and are benefitting from an early recovery from the lockdown.
Bought oversold REITs – Frasers Logistics & Far East Hospitality
Moreover, we picked up oversold REITs such as Frasers Commercial Trust (FCOT) which was acquired by Frasers Logistics Trust (FLT) at a premium. The market was selling FCOT indiscriminately due to margin calls, focused on fears of lower dividends rather than the fact that the acquisition price in equivalent FLT units plus special dividend was at $1.16 per FCOT unit vs the price when we bought in April at $1.10. This is a 5.5% pickup in less than one month. We have also added a position in Far East Hospitality Trust (FEHT). They are now trading at only 0.5x book value with 70% of their income are fixed rent via Master Leases with Far East Group. As long as the Group is able to pay, holders of FEHT can still enjoy a minimum of 5% dividend yield with >25% capital gains upside. Taking advantage of these dislocations created substantial returns for Acre fixed income clients.
Remain bullish fixed income on a supportive Fed
Looking forward, the fixed income market continued to rally strongly as a stabilizing virus situation, extremely supportive Central bank actions and very low interest rates led to a resumption in the chase for yield even through May. We are fully deployed but are becoming more cautious as credit spreads have begun to tighten such that the increasingly lower absolute yield level may not pay for the risk of financial distress. Historically, the tightening of yield usually took six months but this rally is warp-speed. Some names in Indonesia are still attractive but bond selection is very important.
Happy to discuss more over a call / video chat if you’re interested to know more.
Regards,
Vincent