Global Balanced Income Fund

The Fund seeks to provide stable, long-term capital appreciation by investing in a diversified portfolio of local and international bonds, equities and other income-generating assets. The Investment Manager shall diversify the assets of the Fund among different assets classes. The manager may invest in both Investment Grade and High Yield bonds rated at the time of investment at least “B-” by S&P, or in bonds determined to be of comparable quality, provided that the Fund may invest up 10% in non- rated bonds, whilst maintain an exposure to direct rated bonds of at least 25% of the value of the Fund. Investments in equities may include but are not limited to dividend-paying securities, equities, exchange traded funds as well as through the use of Collective Investment Schemes.

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

• We shall invest primarily in a diversified portfolio of listed transferable securities across a wide spectrum of industries and sectors primarily via bonds, equities and eligible ETFs. We may invest in these asset classes either directly or indirectly through UCITS Funds and/ or eligible non UCITS Funds
• We intend to diversify the assets of the Sub-Fund broadly among countries, industries and sectors, but reserve the right to invest a substantial portion of the Sub-Fund’s assets in one or more countries (or regions) if economic and business conditions warrant such investments
• Investments in equity securities may include, but are not limited to, dividend-paying securities, equities, ETFs and preferred shares of global issuers. At our discretion, we may also invest indirectly in equities and equity-related instruments through the use of collective investment schemes. The Sub-Fund will generally, but not exclusively, invest in blue chip issuers listed on Approved Regulated Markets, including equities listed on the Malta Stock Exchange, where applicable
• We shall manage the credit risk and will aim to manage interest rate risk through credit analysis and credit diversity. We may invest in both investment grade (corporate and sovereign) and high yield bonds that have a credit rating of at least “B-” by S&P (or rating equivalent issued by other reputable rating agencies) at the time of investment, provided that the Sub-Fund may invest a maximum of 10% of its assets in non-rated debt securities, including those listed on the Malta Stock Exchange. We will, at all times, maintain an exposure to direct rated bonds, whether investment grade or high yield, of at least 25% of the value of the Sub-Fund
• For temporary or defensive purposes, the Sub-Fund may invest in short-term fixed income instruments, money market funds, cash and cash equivalents. The Sub-Fund may also hold cash and cash equivalents on an ancillary basis or cash management purposes, pending investment in accordance with its Investment Policy and to meet operating expenses and redemption requests.The Sub-Fund may invest in Real Estate Investment Trusts (“REITs”) via UCITS-eligible ETFs and/or CIS and securities related to real assets (including but not limited to real estate, agriculture, and precious metals-related securities) such as equities, bonds, and ETFs as well as CISs as long as these constitute eligible assets under the UCITS Directive
• The Sub-Fund may invest in options, futures and forwards for risk management and hedging purposes only (“Hedging Instruments”)
• Other than any margins required for these Hedging Instruments, the Sub-Fund will not employ leverage

April 2022

Introduction
April, along the same route of the preceding three months and first quarter of the year proved negative for financial markets. Russia’s invasion in Ukraine, stringent Covid-19 policies in China once more prompting demand concerns and supply-chain disruptions, and expectations of a swift tightening in US monetary policy all weighed on sentiment. Global equity indices, notably the tech-heavy Nasdaq, headed substantially lower. Credit markets also came under pressure with investment grade and high-yield corporate credit delivering negative returns as treasury yields – pricing in the Fed’s hawkish stance – maintained the upward trajectory. Also, the positive correlation to US paper led European sovereign yields higher. 

Market environment and performance
The eurozone economy advanced by 0.2 per cent on quarter in the first three months of 2022, the least since the bloc exited a recession last year and below market expectations of a 0.3 per cent growth. Forward looking indicators, notably Purchasing Managers Index (PMI) data painted a somewhat mixed picture as services – benefiting from loosened coronavirus restrictions – expanded while manufacturing contracted. Price pressures remained, with energy and food prices continuing to contribute to a rise in annual inflation – a fresh record high at 7.5 per cent.

The US economy unexpectedly contracted by an annualized 1.4 per cent on quarter in the first three months of 2022 against expectations of a 1.1 per cent expansion as a record trade deficit and a decline in inventory investment weighed on. Aggregate business activity in the US continued to signal an expansion across the private sector. Such expansion, reading at 56, however proved slightly slower than the upturn at the end of Q1, as softer data in the service sector offset the faster expansion in manufacturing.  Annual inflation rate in the US slowed to 8.3 per cent in April, from 8.5 per cent in the previous month, yet exceeding market expectations of 8.1 per cent. Core inflation, which excludes transitory or temporary price volatility, slowed to 6.2 per cent from 6.5 per cent a month earlier.

Sovereign yields across both the single currency bloc and the US furthered on the strong upward trajectory witnessed in March, heading to the highest in years on expectations of more aggressive interest rate increases by major central banks and in spite of worsening sentiment due to China’s strict coronavirus curbs. ECB president Christine Lagarde repeated the message that asset purchases will end early in Q3 and rates could rise this year, but affirmed that the governing council will maintain “optionality”. Meanwhile, Chair of the Fed Jerome Powell signalled that a 50-basis point hike would take place in May to step-up the Fed’s efforts against inflationary pressures.  Overall, the yield on the benchmark 10-year German Bund and Treasury closed the month 39 and 60bps higher than the previous month end, at 0.94 and 2.93 per cent, respectively.

Equity markets had an awful performance in April as inflationary worries and consequent monetary tightening expectations have come to the fore. While such theme has been common across developed markets, US markets have underperformed compared to their European peers as the latter have already seen significant erosion year-to-date on growing concerns regarding their economic backdrop going forward into the year. Meanwhile emerging markets have seen further travails from the economic slowdown in China. The S&P 500 index fell by 4.19 per cent as the FED’s hawkish stance on inflation hammered cyclical sectors still trading at high multiples, such as technology and consumer discretionary. Consumer staples was the only sector which closed the month on a positive. In Europe, the EuroStoxx50 and the DAX lost 2.50 and 2.02 per cent respectively.

Fund performance

In the month of April, the CC Global Balanced Income Fund, driven by the negative performance in both equity and credit markets, continued the year in the red, registering a loss of 2.33 per cent. Throughout the month the Manager continued to seek pockets of value by looking into attractive credit and equity stories, to achieve the best performance within such mandate. While maintaining adequate cash levels, the Manager increased the fund’s exposure to tech free-cash-flow generating names, communications, and basic materials sectors.

Market and investment outlook
Going forward, the Manager sees the macroeconomic backdrop deteriorating, particularly in Europe as inflationary pressures start pinching disposable income. From a credit point of view, we believe that possibly the recent benchmark yield has been conditioned by a market over-reaction given our economic outlook. To this end we view that selective names might be attractive and thus the recent spread widening might pose an entry opportunity.

From the equity front, the Manager remains very cautious in an environment where the fundamental convictions are overridden by emotions and momentum becomes paramount. Although recent losses in highly cyclical sectors have decompressed previously high multiples, the prospects of a more challenging economic environment ahead might make current valuations still unsustainable. The Manager considers that all these arguments warrant caution at this point in time, particularly in relation to the equity allocation with an emphasis on inflation-resilient business models and strong cash flows. Thus, the Manager remains committed to a conservative allocation and a flexible cash position so that the Fund is prepared for future market volatility and possibly opportunities.