17 March 2020

G Fund Short Term Absolute Return – Flash Coronavirus

The accelerated spread of the coronavirus in the developed countries, especially in Europe, has sent a violent shock wave through the markets.


  • The accelerated spread of the coronavirus in the developed countries, especially in Europe, has sent a violent shock wave through the markets.
  • Despite the relatively non-volatile and resilient profile of the fund, the 2020 performance of the G Fund Short Term Absolute Return has entered negative territory since early March.
  • The correction on the risky asset classes has triggered significant dislocations, which are also a source of future opportunities. For example, we are trying to identify opportunities on yield curves, inter-country valuations, some cyclic currencies and breakeven inflation rates.

The first half of March remains a dark period for financial markets, which experienced successive violent movements of risk aversion. The Central Banks have so far failed to calm the markets, which have entered a volatility regime comparable to that experienced during the subprime crisis in 2008.



The fall of the risky asset classes in response to the global spread of the coronavirus has caused a downturn in the net performance of G Fund Short Term Absolute Return. Since the beginning of the year (as on 12 March 2020), the fund’s performance stands at -1.23% (share class I-C, LU1891750942) compared to -0.09% for its reference index, the Eonia capitalised.

The fund has been penalized by the extreme risk aversion of investors, which has led to a credit spread widening that we had not witnessed since the2008 subprime crisis.

Here the performance of the main traditional fixed income asset classes since the start of the year :


* Performance relative to the equivalent sovereign bond. share class I-C, LU1891750942. Sources: Barclays, Merrill Lynch



Summary of investment approach

G Fund Short Term Absolute Return is an absolute return fund that adopts a flexible approach not bound by benchmark constraints. It is founded both on diversification of carry sources and on relative value strategies, while also ensuring strict risk control.

So, G Fund Short Term Absolute Return is built on three pillars:

  • core pocket, consisting of securities from different fixed-income asset classes worldwide. The residual maturities of the selected securities are less than 5 years.
  • satellite pocket, combining directional and relative-value strategies, with the aim of taking advantage of diversified and complementary performance drivers.
  • The overall portfolio is also subject to strict control of its risk budget for each performance driver, supported, when necessary by a hedging pocket.

Since the beginning of 2020, the main performance drivers have been as follows:



The contribution of the core pocket was the main driver of performance compared to the other two pockets.

The core pocket, although not highly volatile, is more exposed to the directional risks of the market. The main negative factors that have driven down performance were the high-yield issuers of our credit bucket and, to a lesser extent, the financial subordinated and hybrid debts.

At the discretion of the fund manager, the satellite pocket can be less – or even negatively – correlated, to the directional risks of the market. During the current sequence of very marked risk aversion, the strategies in this pocket have generally functioned well. However, the main factor cushioning the fall was our hedging pocket, which adopted a positive exposure on US 2-year duration (i.e. our position goes up when the interest rate goes down), combined with credit insurance via the synthetic market (our position increases when spreads rise):

US 2 year - Treasury Note yield (in %) - Credit premium on the derivative market (in basis points)


Source : Bloomberg, au 12 mars 2020



We continue to consider the coronavirus cycle to be a major shock. So, we have particularly focused on controlling the volatility of the portfolio.

In our satellite pocket, we have recently initiated a strategy of steepening of the German curve, since this curve is almost flat in the 2-5 year segment. Also, we consider that the short-term segments will be supported by monetary and fiscal policies, and, if investors recover their appetite for risk, the longer segments will be the best candidates for increases in interest rates.

With regard to our hedging pocket, and also potentially our satellite pocket, we expect the euro to rise globally against other currencies, such as the US dollar. Firstly, the reduction in interest rates in the euro zone is reinforcing the euro’s status as a funding currency. Secondly, compared to other central banks, the European Central Bank has smaller margins for manoeuvre for increasing its already ultra-accommodative bias.

In the core pocket, we are benefitting a bit from the easing of certain security valuations in the credit market, thereby increasing the yield prospects for our fund. These opportunities have been identified on investment grade corporate debt (with maturity in 2021) and on the emerging sovereign debts, again with short maturity (2021, 2022). Financial analysis of the short-term liquidity of each of these issuers has provided us with a reassuring picture of their ability to honour their debt till maturity. So, this analysis, in combination with the short maturity of the selected issues, has given the portfolio a capacity for recovery. We therefore expect our issues to again converge rapidly towards par as our securities reach maturity.

The main risks associated with the fund are: interest rate riskcredit riskforeign exchange riskliquidity risk, capital loss risk, counterparty riskderivative instrument risk and risk intrinsic to the use of speculative instruments.


(0)Max drawdown: maximum historic loss borne by an investor who has purchased at peak value and sold at trough value.

(1) iTraxx: CDS baskets. iTraxx Xover: basket of CDS rated BB and BBB. iTraxx Main: basket of Investment Grade CDS. CDS: Credit Default Swaps. A CDS is a derivative product that hedges against the risk of default by a debt issuer.



This document is not intended for “non-professional” European Union investors, as defined in “MiFID” (EU Directive 2004/39/EC dated 21 April 2004) or any other local regulation. Similarly, in Switzerland, this document is not intended for investors not classified as “qualified investors” under the applicable legislation. As a general rule, this document must not be transmitted to private clients or individuals as defined in any legislation, nor to “US Persons”.

This document contains information concerning G FUND SHORT TERM ABSOLUTE RETURN, a compartment of G Fund (also referred to as “the SICAV”), a Luxembourg-based undertaking for collective investment in transferable securities (UCITS), covered by part I of the Law dated 20 December 2002 and constituted in the form of a “SICAV”(Société d’Investissement à Capital Variable – a European publicly traded investment company structure for open-ended funds). The SICAV is registered with the Luxembourg Trade and Companies Register under number B157527. Its registered office address is 5, allée Scheffer, L-2520 Luxembourg. G Fund was authorized for trading by the Luxembourg financial authority CSSF (“Commission de Surveillance du Secteur Financier”).

Investors are advised that not all compartments of the SICAV are necessarily registered, authorized for commercialization or accessible to all investors in all jurisdictions. Before subscribing to a compartment, the client must take due note of the complete prospectus of the SICAV and of its latest annual and half-yearly reports and its articles of association. These documents are available free of charge at the registered office of the SICAV or at the registered office of the authorized representative accredited by the competent authority in each jurisdiction concerned.

Investment in the compartments of the SICAV involve risks. Investors must fully inform themselves of these risks before any subscription and must make sure that they have understood the present document. We recommend that all potential investors contact an advisor to determine whether this investment is suited to their profile.

The performance of a compartment is not guaranteed but can vary both upwards and downwards. The past performance of a compartment is not a reliable indicator of the future performance of the same compartment. Performance is quoted excluding the costs and commissions charged for subscription/redemption.

This document is not an investment recommendation. Similarly, this document does not constitute an offer of purchase or request to sell in countries where the compartments of the open-ended fund are not authorized to be traded or where any such offer or request would be illegal.

The commercial teams of Groupama Asset Management, the G FUND management company, are at your service if you wish a personal financial recommendation.

Published by Groupama Asset Management – Registered office: 25 rue de la ville l’Evêque, 75008 Paris – Website: www.groupama-am.com