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Fund commentary

Aviva Investors Euro Liquidity Fund

Quarterly review for the three months to 30 June 2024

Demi Angelaki

Fund Manager

Summary

What happened in the market

The euro money market yield remained inverted throughout the quarter reflecting the expectation for future interest rate cuts after the first 25 basis point reduction on 6 June.

How the fund performed

We aimed to extend the duration of the fund in order to lock-in higher yields. However, we remained cautious of the negative cost of carry for longer tenors. We kept a sharp focus on credit fundamentals, especially with political risk premium on the rise.

Looking ahead

We are cautious on negative carry for longer tenors but happy to increase exposure if levels are attractive on a risk-reward basis. We still like asset-backed commercial paper for liquidity purposes.

Key facts

Fund managers
Demi Angelaki since 12/2020,
 Richard Hallett since 03/2022
Share class inception date
18/08/2008
Fund size (as at 28/06/2024)
EUR 2939.9m
Benchmark
MPS BM for Euro Liquidity Fund

Fund overview

Objective: The investment objective of the Sub-Fund is to offer returns in line with money market rates and preserve the value of the investment. The Aviva Investors Euro Liquidity Fund is a Short-Term Variable Net Asset Value (VNAV) Money Market Fund.

What happened in the market

European monetary policy makers began to pave the way for an interest rate cut over the quarter. Although inflation was proving more sticky than expected, the European Central Bank (ECB) indicated that, with the longer-term trend looking promising, it could afford to support the stuttering economy with looser policy. In a widely flagged move, the bank cut its three main policy rates to 3.75% at the start of June by 25 basis points, becoming the first of the major central banks to do so. It did stress, however, that this was not necessarily the beginning of a series of cuts and that future decisions would remain dependent on the data. The euro money market yield remained inverted throughout the quarter reflecting the expectation for future interest rate cuts. June saw some notable political developments, with the EU parliamentary elections seeing a shift to the right in the core countries. The results prompted France’s president Macron to call a snap election for the National Assembly, which risked ushering in a majority far-right government.

How the fund performed

For the latest Monthly, Cumulative, and Annualised Fund performance data please refer to the PDF factsheet below.

Past performance is not a guide to future performance
Basis: Mid to mid, net income reinvested, net of ongoing charges and fees, in the share class reference currency and net of tax payable by the Fund. For full details of the benchmark please see the PDF factsheet.

The Fund's performance is compared against the 7 day EUR Libid.

During the quarter we aimed to extend the duration of the fund in order to lock-in higher yields. However, we remained cautious towards the negative cost of carry for longer tenors. We kept a sharp focus on credit fundamentals, especially with political risk premium on the rise. The fund’s weighted average maturity (WAM) and weighted average life (WAL) ended the quarter at 37 days (higher) and 64 days (little changed) respectively. The fund’s assets under management were higher at €2.93 billion as at the end of June and its gross daily yield decreased gradually to 3.87%, reflecting the ECB rate cut.

Looking ahead Last updated 30 June 2024

The macro-economic picture for Europe remained broadly unchanged over the month, even though survey data worsened slightly in June. Inflation is expected to remain at around same levels for now. The ECB may have cut interest rates as expected but it does not want to commit to any particular path. Current market pricing of about 44 basis points of cuts by end of year seems reasonable. The outlook for credit fundamentals looks more challenged, which leads us to be cautious on spreads. In the fund, we are cautious on the negative carry for longer tenors but are happy to increase exposure if levels attractive on a risk-reward basis. We still like asset-backed commercial paper and European agencies (SSAs) for liquidity purposes. We hold a more neutral stance on spread duration and will monitor French political developments and the possibility of spread widening of French issuers. Our stance remains vigilant, being conscious of the fact that France (sovereign/agencies/banks) represents a large proportion of the investable universe for money market funds.

Risks

Full information on risks applicable to the Fund are in the Prospectus and the Key Investor Information Document (KIID).

Investment and currency risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.

Money market securities risk

When short-term interest rates fall, the yield on money market instruments generally falls. In extreme market conditions, the value of money market instruments could fall, perhaps significantly.

Documents

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Important information

THIS IS A MARKETING COMMUNICATION

The source for all performance, portfolio and fund breakdown data is Morningstar unless indicated otherwise. For share classes that have not yet completed 5 years, the cumulative performance chart will start from the first full month. All data is as at the date of the Factsheet, unless indicated otherwise.

Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as personalised advice of any nature. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Portfolio holdings are subject to change at any time without notice and information about specific securities should not be construed as a recommendation to buy or sell any securities.

For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained, free of charge from Aviva Investors Luxembourg S.A., 2 rue du Fort Bourbon, L-1249 Luxembourg or from J.P. Morgan Administration Services (Ireland) Limited. You can also download copies at www.avivainvestors.com

Where relevant, information on our approach to the sustainability aspects of the fund and the Sustainable Finance disclosure regulation (SFDR) including policies and procedures can be found on the following link: https://www.avivainvestors.com/en-gb/capabilities/sustainable-finance-disclosure-regulation/

Issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company.