Posted by Ben Cheng & Sandy Liang
Every major country in Europe and the U.S. - and now Japan - have 10 year bond yields trading at the lowest yield in the previous three months.
Japan 10-year yield – 31bps (!!)
Germany – 55bps
Canada – 141bps
U.S. – 203bps
An important question to ask is, why are bond yields so low?
Increasingly the Fraser Institute, and recently strategists at Credit Suisse and RBC think the below demographics table has something to do with it. It’s the percent of the population over 65 and it looks like the order of bond yields too. (Here's a good article from January that talks about the Fraser Institute's thoughts: http://business.financialpost.com/fp-comment/the-natural-rate-of-interest)
Posted by Darren Cabral*
Nike, one of the largest equity positions in the Aston Hill U.S. Growth Fund, released quarterly results after the close yesterday that defied gravity. The company’s share price has responded by rising almost 9% this morning. Nike reported strong sales growth across all markets combined with impressive margin improvement which helps offset foreign currency headwinds and has numerous levers to pull to further drive revenue growth and margin expansion. Nike’s performance in North America and China stood out to us. In North America, viewed as a mature market, the company demonstrated it continues to be at the forefront of delivering products that resonate with consumers across multiple lines with strong sales growth in footwear and apparel. China delivered the strongest revenue growth which gives us a window into Chinese consumer demand and bodes well for other best-in-class brand leaders such as Apple (on August 24, Tim Cook said “we continue to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks” – we are more inclined today to believe him).
We were able to enhance the return of our long equity position in Nike in two ways.
First, ahead of Nike announcing earnings, we sold cash covered puts on Nike stock expiring in 3 weeks from now at a strike price of $105, meaning we would be obligated to buy Nike shares at $105 if Nike were to trade at or below this level on or prior to the October expiration date. We had no problem executing this transaction because it’s an attractive price for a very high quality company;, and the probability that we would be exercised was, in our opinion, quite low and our return would be enhanced by the premium we received for selling the put option. The probability that our put gets exercised now is far lower today – Nike would need to fall by close to 15% over the next three weeks.
Posted by Darren Cabral*
We recently established a position in the Aston Hill U.S. Growth Fund in Kroger, a U.S. grocery company, using both equities and options in advance of the company’s earnings release this past Friday morning.
Within our equity portfolio, we source long equity positions from an investable universe filtered using various screens that give priority to low volatility and dividend attributes. Kroger ticks enough of the right boxes for us to make it a core holding. We also apply transient filters that are more important in some environments and less important in others. One such filter is geographic revenue sources, favouring companies with high domestic revenue over companies that derive a high proportion of their revenue outside of the U.S. because they face currency headwinds. Kroger generates all of its revenue inside of the U.S. and also is benefitting from lower transport costs thanks to declining fuel prices. It also helps that grocers are typically a defensive industry in challenging markets – people need to eat!
Posted by Aston Hill Sales & Marketing Team
Download our new report: The results are in: Liquid Alternatives protect the downside during market drawdowns.
For liquid alternative managers who provide downside protection strategies, August’s selloff – and the spike in volatility – was a welcomed period in which to prove themselves.
After an almost six year bull market, many liquid alternatives funds have left investors feeling underwhelmed and frustrated with performance. However, there’s a disconnect between what investors say they want – risk management and insulation from volatility – versus their disappointment in strategies that have underperformed the broader market. According to the 2015 Natixis Global Survey of Individual Investors, more than three-quarters of investors want strategies that help insulate them from volatility.
While investors were right to look to liquid alternatives to provide this insulation, the extended market rally left most hedging strategies fairly superfluous. But the recent August correction surely brought risk management back to the forefront of investors’ minds, quelling those disappointed with past underperformance (Display 1).
Posted by Ben Cheng
While headlines continue to be dominated by equity market volatility, I would draw everyone’s attention to what is happening in high yield bonds. Specifically, the hard evidence shows that default rates are absurdly low. Energy and Coal related bonds accounted for 77% of the defaults YTD. If you remove the energy and coal defaults, the entire high yield market is seeing default rates close to 0.5%! That means that credit conditions in the economy are doing just fine. I am not in the habit of calling market tops nor bottoms, but I'd suspect we are likely very near the bottom for high yield. The low default rates may be what will lend support to high yield bonds at these levels.
The AHF Credit Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:
All provinces and territories $125,000 or $25,000(1)
BC, NB, NS and NL Only: $5,000(2)
(1) A minimum purchase of $25,000 is available to residents who meet certain requirements.
(2) A minimum purchase of $5,000 is available to residents who meet certain requirements and reside in BC, NB, NS and NL by way of the prescribed OM.
Investors should contact their investment dealer or Financial Advisor for more information.
If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the AHF Credit Opportunities Fund.
Disclaimer: Information pertaining to AHF Credit Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the AHF Credit Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.
The Aston Hill Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:
All provinces and territories $150,000 or $5,000(1)
(1) A minimum purchase of $5,000 is available to residents who meet certain requirements. Investors should contact their investment dealer or Financial Advisor for more information.
If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the Aston Hill Opportunities Fund.
Disclaimer: Information pertaining to Aston Hill Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the Aston Hill Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.
Oct 6, 2015 11:49 EDT