Noble Apex eNewsletter Issue 825- Star Fund Manager in a hard time

2019-09-11 08:52
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9 September 2019, Issue 825

Global Market Commentary


  • United States: The Sino-US trade tensions have shown signs of easing, the White House economic adviser Kudlow said that China and the United States will have meeting in early October. For the entire week, the Dow rose by 1.49% to 26,797.46. The S&P 500 index rose by 1.79% to 2,978.71. The Nasdaq rose by 1.76% to 8,103.07.
  • Europe: The market expects the European Central Bank will introduce an expansionary monetary policy as a result of the PBOC’s broad RRR cuts and targeted RRR cuts. Over the week, the UK’s FTSE 100 index rose by 1.04%, the German DAX index rose by 2.11%, and the French CAC40 index rose by 2.25%. The STOXX 600 index rose by 2.02% to 387.14 points.
  • Asia: China announced a broad RRR cut and targeted RRR cut on Friday, which will release long-term funds of about 900 billion yuan to stimulate the economy and alleviate some of the concerns about global economic growth. Over the week, the Nikkei 225 index rose by 2.39% to 21,199.57 points. The MSCI Asia Pacific Index rose by 1.99% to 156.18 points.


  • United States: Sino-US trade tensions have shown signs of easing, China and the United States will meet in early October to negotiate on the trade issues. Besides, the market expects the Fed will cut interest rates again this month, causing funds flow into the stock markets. For the whole week, the yield on the US 10-year government bond rose by 6 basis points to 1.659%.
  • Eurozone: The market expects the European Central Bank will introduce an expansionary monetary policy, causing funds flow into the stock markets. For the whole week, the German 10-year bond yield rose by 6 basis points to -0.640%.


  • Oil Price: US Federal Reserve Chairman Powell said the Fed will take appropriate action to maintain the US economic expansion. Besides, according to the US government report, the US crude oil supply has decreased for three consecutive weeks, stimulating oil prices to rebound. Over the week, New York oil futures rose by 2.58% to close at $56.52 a barrel.


  • United States: The US employment data is worse than expected, and the latest comments made by Fed President Powell are being perceived as dovish, which caused the dollar exchange rate to fall. For the entire week, the Dollar Index fell by 0.528% to 98.394.
  • China: The Sino-US trade tensions have shown signs of easing, China and the United States will meet in early October to negotiate on the trade issues. For the whole week, the yuan rose by 0.515% against the US dollar to 7.12.


Economic-related News

  • United States: The White House economic adviser Kudlow said that the Sino-US trade war may need a long period to resolve. He also claimed that China has not yet requested to postpone the implementation of the tariffs that came into effect on October 1. There are no preconditions for the upcoming negotiations.
  • United States: The Trump administration tried to call the IMF to attack the renminbi. However, the IMF allegedly rejected the US Treasury’s allegations on China of manipulating the renminbi exchange rate.
  • United States: After an American soldier was killed, Trump canceled secret talks with the main Taliban leaders and the Afghan president and stopped the peace talks.
  • Eurozone: British Prime Minister Johnson claimed that he would rather be dead than ask for a delay on Brexit. If Labour leader Corbin is willing, he plans to hold a general election on October 15.
  • Eurozone: According to informed sources, the opposition party will reject Prime Minister Johnson’s early general election motion in the British Parliament meeting on Monday, with an aim to prevent Hard-Brexit.
  • Eurozone: Eurostat announced that after the seasonal adjustment, the final growth rate on the Euro zone’s total employment in the second quarter of this year slowed from the previous value of 0.4% to 0.2%.
  • Japan: The Cabinet Office of Japan announced that after seasonal adjustment, Japan’s real GDP growth in the second quarter of this year slowed from 0.5% in the first quarter to 0.3%.
  • Japan: Japan’s Ministry of Finance announced that, Japan’s July current account surplus increased from 1,211.2 billion yen in June to 1,999.9 billion yen, but it is still below the market expected surplus of 2,046 billion yen.
  • Russia: The Bank of Russia cut interest rates for the third time, implying that following by the inflation falls by nearly 4%, monetary policy may be further eased in the future.
China Market Commentary
Economic-related news
• The People’s Bank of China decided to cut the benchmark interest rates by 0.5 percentage on September 16 and it will also cut another 1 percentage to some of the city commercial banks in October and November, which will totally release about 900 billion yuan to the market.
• China’s US dollar exports unexpectedly fell by 1% in August, while imports fell by 5.6% year-on-year, with a trade surplus of USD 34.84 billion.

Star Fund Manager in a hard time

The star fund manager cannot win every battle, and this sentence has been confirmed again in the past month. Manager X is a well-known fund manager in the industry, managing corporate bond funds. During his tenure, he successfully seized different opportunities and brought rich returns to investors. However, things have changed in the past year.

Argentine bond crisis

The Argentine presidential first election had unexpected results, and the opposition won, and it is highly likely to win in the second round of voting. The market is worried that Argentina will return to the political environment before 2015, and local bonds have plummeted. The Argentine government immediately restarted capital controls and delayed repayment of bonds, further triggering market worries. At present, the Argentine government has begun negotiations with the IMF to change the conditions for the previous issuance of debt.

Emerging market bond assets recorded a sharp decline due to the crisis. Since Argentine bonds were included in the main bond index, most fund managers failed to escape this round of decline. Manager X overweighed in Argentine bonds, and the losses were even more devastating. Among them, a fund he manages holds more than 10% of Argentina’s bond positions, and his net asset value has dropped significantly.

Short duration drag performance

Manager X and his team have been bearish on the bond duration. From their media interviews, they believe that the Fed is too concerned about the external environment and ignores inflationary pressures in the United States. However, the market did not follow Manager X’s forecast direction. Year-to-date, the Fed turned to doves and started to cut interest rates, all pushing up bond prices. It’s not surprising that Manager X’s fund’s performance is lower than the benchmark index and peers.

Investor’s lessons

Chasing star manager is not a rational choice. The higher degree of freedom allows Manager X to deploy in bonds and currencies in different regions and countries to achieve excess returns. The probability of success of these strategies is not necessarily consistent, and investors must understand the source of risk for the fund to seek excess returns.

Excessive concentration is a nightmare for investment. If the bet is right, the centralized position can bring more benefits. However, investors need to pay attention to risk management. Asset diversification is the easiest way to manage risk. Therefore, in asset allocation, investors need to pay attention to whether their assets are excessively concentrated.

Finally, holding non-mainstream (strategic opposite to market views) assets may lead to pain and loneliness. However, the fund is not related to the mainstream bond index, or even negatively correlated, which means that it is an investment tool that enjoy diversification effect.


今天是沉重的一天。30 年前,德先生的幽靈在神州上空飄過,絕塵而去,留下血染的風采,歷史給我們重重一擊。夢碎了,代價不菲,如今疤痕未退……



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