Federated Project and Trade Finance Tender Fund XPTFX

Product Type Asset Class Category
Closed-End Fund Alternative Trade Finance
As of 12-31-2017

Market Overview

There has been quite a bit of press coverage on the protectionist anti-trade rhetoric emanating from developed economies, but no evidence so far that this has impacted global trade flows. An index by the Institute of Shipping Economics and Logistics that tracks container volumes at the world’s 82 largest ports hit an all-time high in November. And according to Trade Finance Magazine, the top 10 trade finance banks originated 304 deals with a cumulative value of $51.64 billion for in 2017’s third quarter.

Intra-regional trade patterns have remained strong, especially in Asia thanks to China’s “One Belt One Road” initiative. By investing in rail, ports and power plants along the centuries-old silk trade routes between Asia and Europe, China is seeking to stimulate cross-border trade, helping to generate transactions that we find attractive. According to recent research from HSBC, China anticipates its trade along the land and maritime routes will surpass $2.5 trillion annually over the next decade. One example of a project contributing to this growth is the China-Europe rail service. Over the last six years, it has run over 3,500 trains linking 27 Chinese cities to 11 European countries. China also has pledged to help build a rail link between Vientiane Laos and Yunnan province, and a railway from Singapore to Kunming already is underway.

These early projects directly benefit China but also facilitate trade for its Asian neighbors and trading partners. Perishable foods such as lamb from New Zealand and Australia and fruit from the Philippines will be able to reach markets in Central Asia, Europe and the Middle East by land through China, shaving precious time off the journey.

Looking Back

During the fourth quarter, the regional allocations changed. Exposure to Asia and Eastern Europe decreased as investments matured, while exposure to Latin America, the Middle East and North Africa, and Sub-Saharan Africa increased. Sub-Saharan Africa had the highest average coupon and was the largest regional contributor to total return in the quarter, with Eastern Europe a close second on an improving credit story and select Russian positions. The fund’s North American positions contributed the least to total return but all regions provided a positive contribution. 

At a sector level, the most significant increases in exposure were in Foreign Sovereign Guaranteed facilities and Basic Industry; Banking experienced the largest decrease. Although relatively small allocations, Telecommunications and Utilities sectors had the highest average coupons. The three largest sector contributors to total return during the quarter were Energy, Consumer Goods and Basic Industry, while the three lowest contributors were Telecommunications, Banking and Capital Goods. 

How We Are Positioned

Within Asia, the fund has holdings and/or positions in India, Indonesia, Kazakhstan, Pakistan and Sri Lanka. It is difficult to invest directly into China; Chinese banks typically do not syndicate their transactions, adding to administrative and operational barriers to direct investing there.