Monthly Performance Update – December 2017

The TwinRock Value Opportunity Fund is a credit investment fund focused on the debt obligations of corporate borrowers. The fund invests in bonds and loans of corporate issuers in the high grade and non-investment grade rating categories. The fund seeks to deliver steady income and in appropriate market conditions capital appreciation by holding securities with substantial yields which are remote from default. The fund employs leverage to enhance return and may invest in equities and derivatives at the fund manager’s discretion. The fund does not compete with a benchmark; the fund seeks absolute returns which exceed long-term equity averages, with the substantially lower risk and volatility that is associated with higher quality bonds.

The capital markets remain dominated by political and headline risk. The underlying environment remains constructive for risk in our view, notwithstanding substantially elevated valuations in both credit and equity. The fund started 2017 underweight risk in anticipation of opportunities when the existing momentum breaks.

The post-election consensus provides opportunities either from a disintegration of the consensus or a continuation of the current trend against prevailing skepticism. US government bond yields remain a principle driver of market direction (both credit and equity). Equity valuations have increased against a decline in government bond prices. This can only go so far, in our view.

Volatility – as measured by equity and credit derivatives – is significantly low. High yield bond prices are not cheap against most measures. Equity valuations (are also cyclical highs. Macro-economic data is suggestive of ongoing (if not robust) economic expansion, healthy household balance sheets, and low unemployment. The fed remains accommodative.

Alexander Philips