Post – ECB Newsflash
In 2017, in a difficult environment for the money-market universe, our money-market funds demonstrated strong resistance in terms of inflow.
Assets Under Management
At the end of 2017, the cumulative assets under management of Groupama Entreprises, Groupama Eonia and Groupama Trésorerie totalled 12.3 billion euros, compared to 10.7 billion euros at the end of December 2016.
Since 2016, as with all money-market funds, yields declined progressively into negative territory, as a result of the historically low interest rates and the low risk premium offered on the Credit component.
As of 31 August 2017, the net performance of our funds for the year stand at:
- Groupama Entreprises (FR0010213355 part I-C): -0.12%;
- Groupama Eonia (FR0010582452 part I-C): -0.07%;
- Groupama Trésorerie (FR0000989626 part I-C): -0,09%;
- But all these funds performed better than their benchmark EONIA Compounded index (-0.24%).
The moderate downward pressure on risk premiums during the first months of the year was unable to offset the effect of the negative interest rates (negative carry trade) and therefore to yield positive performance of the money-market funds in the first half of 2017.
By contrast, the promise of liquidity has been perfectly kept during this period. The same applies to volatility, which has remained very low.
Table of annualized performance over 1 year, 3 years and 5 years (as at 31 August 2017) :
|Period||Groupama Entreprises||Groupama Eonia||Groupama Trésorerie||EONIA comp..|
Source: Bloomberg, data as at 31/08/2017, parts I-C. Past performance is not a reliable indicator of future performance
*Repositioning of Groupama Eonia at the start of 2016 from Short-Term Money Market Fund to Classic Money-Market Fund
ECB press conference on 7 September 2017
Like everyone else, the ECB is looking ahead after the summer break. It has preferred to postpone any decision on possible changes to its quantitative easing policy. We must now wait until 26 October for further clarification. The position of the Frankfurt-based institution should be more optimistic on growth and inflation. This would justify :
- an adjustment of the terms of its quantitative easing programme, with a progressive reduction (“tapering”) of its bonds purchases (which today stand at 60 billion euros per month);
- non-renewal of its TLTROs (“targeted long-term refinancing operations”) on their maturity, marking an end to the ECB’s exceptional measures to stimulate bank refinancing, with most of the sums involved expected to be naturally transferred to standard ECB refinancing operations (MRO s and LTROs);
- on the other hand, the holding of its key rates at their current level beyond the end of tapering.
The hunt for credit yields
At present, we estimate that the interest rate risk is still weighing more towards the upward than the downward side. However, the accommodating nature of the ECB is likely to continue, with the effect that rates are likely to be held at low levels.
As of 7 September, interest rate sensitivities (WAM(1), in days) are as follows:
We remain close to the upper limit for Groupama Entreprises, to obtain the maximum value on interest rate risk in a constrained Short-Term Money-Market universe (maximum 60 days).
To limit the impact of a possible rise in interest rates, for the same face value, we prefer a variable-rate security to its fixed-rate equivalent. We have therefore purchased a sizeable component of floating-rate notes (FRNs) (37% for Groupama Trésorerie, as of 7 September 2017).
The positioning of Groupama Eonia is structurally different, with a higher proportion of fixed-rate instruments (approximately 12% of floating-rate notes as of 7 September 2017): the universe of this fund is less favourable to investment in variable-rate instruments than is the case for Groupama Trésorerie. The banking institutions that are more inclined to issue at variable interest rates are less present on the segment preferred by Groupama Eonia.
Additionally, we are more constructive on the Credit component. The credit sensitivity is higher (WAL(2), in days) to take advantage of the premiums offered by certain Credit issuers.
Therefore, we have limited the proportion of fixed income investments having a maturity longer than 1 year (as of 7 September 2017):
- 0% for Groupama Entreprises
- 1.7% for Groupama Eonia
- 4% for Groupama Trésorerie
In the context of historically low risk premiums, we prefer to focus our portfolios towards companies in the peripheral countries having solid fundamentals, in order to profit from some degree of carry trade.
We find value by broadening our investment spectrum to new issuers that are outside the scope of action of the Credit Rating Agencies but are nevertheless stable, such as Safran.
The prospects of the money market prompt us to weight the risks on the Fixed-Income component, in the light of historically low levels. Additionally, we estimate that risk premiums will remain low in the next few months and almost certainly for a large part of next year.
We therefore expect money-market yields to continue to erode slightly over the next few months.
(1) WAM (Weighted Average Maturity): The weighted average maturity corresponds to the interest rate sensitivity, expressed in days
(2)WAL (Weighted Average Life): The weighted average life corresponds to the credit sensitivity, expressed in days
For information, the main risks associated with the fund are interest rate risk, credit risk, liquidity risk, capital loss risk and derivative instrument risk.
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Published by Groupama Asset Management – Head office: 25 rue de la Ville l’Evêque, 75008 Paris – Website: www.groupama-am.com