The fund benefitted from positive carry as well as a positive mark to market P&L for bonds exposed to US hurricane risks.
This was in line with our expectations. Hurricane activity in the Atlantic basin during August was below historic levels. This was in line with our forecasts and due to the current El Niño phenomenon being experienced in the region.
The only new issue over the month was Bosporus 2015, a bond exposed to earthquake risk in Turkey. The offered spread for this bond dropped below its initially guided price and, as a result, the fund refrained from supporting the transaction due to its unattractive nature on a risk-adjusted basis when compared to other opportunities in the market.
Tropical Storm Erika developed during August, with predictions from the National Hurricane Center that it would intensify and make landfall as a hurricane in the state of Florida towards the end of the month. Despite this, the interaction of Erika with land masses in the Caribbean and, most notably, with the mountainous topography of Hispaniola led to a weakening of the storm and, ultimately, Erika dissipated, resulting in no detrimental impact to positions held within the fund.
As the last three months of the Atlantic basin hurricane season begin, the rally amongst Cat Bonds exposed to this peril is expected to continue, provided that no adverse market events or catastrophes occur.