A quieter period for markets as we head for autumn’s fog of uncertainty.

The most significant move has been the gradual increase in US rates, where the ten-year rates has reached 81bp and the long bond 162bp, back to the top of the post-March range, and steepening the yield curve again. After being stuck at the lower levels for a while, UK ten-year rates have also begun to move up again to 27bp. UK and European stocks have returned to the bottom of the range since May, worrying about resurgent COVID-19 and accompanying lockdowns, US Elections, US stimulus packages, European stimulus packages, Brexit, generally worrying…

Within the Tenax Absolute Return Strategies Fund, we have continued with the policy of the past six months of reducing our cash and near-cash exposure in favour of building-up higher-risk asset exposure, notably in the credit markets, as we see opportunities. Credit markets continue to function well with corporates seeing strong demand for their offerings. We have taken new issues from Diageo, Heathrow Funding, Pension Insurance and Rolls Royce during the period, but, after the strength that we have seen in credit since the March lows, it was not all one way and we took the profit from sale of our holding in a BP 1.827% 2025 stock that we had acquired in April.

We had the opportunity to build-up our exposure to the energy efficiency area of our infrastructure holdings taking a placing of new stock from SDCL Energy Efficiency that they undertook during the period and establishing a small new position in Triple Point Energy Efficiency, which was a new issue. Overall exposure to infrastructure in its differing guises is now close to 6% of the portfolio. We have also increased our exposure to music royalties, which now sits in our Alternatives and Hedge Funds bucket.

We made no further changes to the equity slice of the Fund during this period, not seeing any unmissable opportunities. Property still presents an interesting conundrum, it is a small slice of the portfolio at just over 2%, though we also have convertible exposure to the area, and tempting to add to at current depressed levels. We suspect that markets are too bearish of London offices, where there is a shortage of high grade buildings and deals are being done at prices close to pre-COVID levels (Google, Munich RE etc). One to watch…

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