Emerging Market Bond Fund USD Accumulator

The Fund aims to maximise the total level of return through investment, in a diversified portfolio of Emerging Market Corporate and Government fixed income securities as well as up to 15% of the Net Assets of the Fund in EM equities. In pursuing this objective, the Investment Manager shall invest primarily in a diversified portfolio of Emerging Market bonds rated at the time of investment BBB+ to CCC+ by S&P, or in bonds determined to be of comparable quality. The Fund can also invest up to 10% of its assets in Non-Rated bond issues and up to 30% of its assets in non emerging market issuers.

The Fund is actively managed, not managed by reference to any index.

The Investment Manager of the CC High Income Bond Funds – EUR and USD has the duty to ensure that the underlying investments of the funds are well diversified. According to the prospectus, the investment manager has to abide by a number of investment restrictions to safeguard the value of the assets

• Minimum Credit Rating CCC+ (or equivalent)
• Up to 10% in Non-Rated Bonds
• Average Credit Quality of B- (or equivalent)
• Emerging Market Issuers as per MSCI Emerging and Frontier
• Up to 15% in Emerging Market Equities
• Use of FDIs for hedging purposes only
• No limit on exposure to CIS
• Up to 30% in Non Emerging Market Issuers

March 2025

Introduction

Emerging market (EM) credit delivered strong performance throughout the first quarter of 2025, rebounding from the sell-off seen in late 2024. That earlier downturn was largely driven by heightened risk aversion ahead of the US presidential election, as markets priced in potential downside risks linked to anticipated protectionist policies, particularly trade tariffs.

Tariff-related risk remained a notable headwind even after the inauguration, with countries like China and Mexico bearing the brunt. Mexico, in particular, was seen as especially vulnerable due to its central role in addressing US border security concerns. Proposed 25% tariffs on Mexican imports, introduced in response to perceived policy shortcomings, were temporarily averted following diplomatic efforts and commitments to strengthen border enforcement.

As US exceptionalism became more pronounced – negatively impacting EM economies and contributing to a broader climate of uncertainty – certain developments proved supportive for EM credit. These included rising US policy uncertainty, a decline in 10-year US Treasury yields, and a weakening US dollar, all of which followed softening US sentiment indicators and growing concerns over economic growth. These factors provided a meaningful tailwind for EM debt. Notably, EM corporate credit posted a modest 0.10% return in March, contrasting with negative returns across global investment-grade and high-yield credit. For the quarter as a whole, EM corporate credit outperformed, delivering a 2.57% gain.

Market environment and performance

The lack of clarity stemming from the dynamic and continuously evolving geopolitical landscape is fuelling heightened uncertainty. The re-election of Donald Trump has raised concerns among US trade partners, as the risk of new tariff impositions becomes more pronounced. Mexico and Canada, in particular, have come under pressure due to perceived shortcomings in controlling fentanyl imports and alleged unfair trade practices, with threats of tariffs already being voiced. China has also faced renewed tariff measures, with Trump initially adopting a more cautious approach by imposing a 10% tariff on Chinese imports—later raised to 20%. In response, the People’s Bank of China (PBoC), contending with persistent challenges to economic recovery, has shown restraint. Rather than retaliating aggressively, it has opted for diplomatic engagement, aiming to avoid actions that could further undermine domestic consumption.

In economic numbers, China’s General Composite PMI increased to 51.8 in March 2025 from 51.5 in the previous month, marking the highest reading since last November. Still, it was the 17th month of growth in private sector activity, driven by the strongest expansion in manufacturing output in four months and a three-month peak in service sector growth. Meanwhile, China’s consumer prices dropped by 0.7% YoY in February 2025, surpassing market estimates of a 0.5% decline and reversing a 0.5% rise in the prior month. This was the first consumer deflation since January 2024, amid fading seasonal demand following the Spring Festival in late January.

Latin America’s economic landscape presents a mixed picture. Earlier concerns about resurgent inflation were alleviated by previous month’s readings, which suggested a potential disinflationary trend in some economies. However, more recent data has reignited these worries. Notably, Brazil’s inflation rate rose to 5.06% from 4.56%, surpassing market forecasts and reaching its highest level since September 2023. Mexico and Chile also saw increases, with headline inflation rising to 3.77% and 4.9%, respectively.

In Brazil, with inflation still above the central bank’s target, the policy rate has been raised three times since the beginning of the year and now stands at 14.25%.

Fund performance

The CC Emerging Market Bond Fund posted a negative return of 0.26% in March, which offset the gains achieved in the first two months of the year. For Q1, the fund delivered a return of 1.67%.

In response to ongoing market volatility and expectations of a prolonged period of elevated Federal Reserve policy rates, the portfolio manager continued to actively manage risk and yield. After reducing exposure to tariff-sensitive issuers, increasing allocations to income-generating securities, and mitigating interest rate duration in the previous month, the manager largely maintained the portfolio’s current allocation in March. The only adjustment made was a reduction in exposure to sovereigns through ETFs, which effectively lowered the portfolio’s duration.

Market and investment outlook

Looking ahead, policy uncertainty under the new US administration, upcoming Federal Reserve decisions, and the broader trajectory of global interest rates will remain key drivers. Should current economic uncertainty persist, a shift toward a more dovish stance by the Fed could prompt further depreciation of the US dollar, a trend that has already begun to emerge in recent weeks.

For the CC Emerging Market Bond Fund, the portfolio manager will maintain a dynamic approach, actively assessing the evolving market landscape to capitalize on attractive credit opportunities. Consistent with recent strategies, portfolio adjustments will be made to align with prevailing yield conditions and optimize duration, as deemed prudent. Furthermore, the manager will vigilantly monitor the geopolitical landscape within emerging markets, particularly the potential for escalating tensions, which continue to present a source of market uncertainty.