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

August 2022

Introduction
August brought some sense of sobriety to the markets after the rumour of a FED pivot in early 2023 has been disregarded by the same institution in its annual Jackson Hole annual meeting. In essence this was another reality check for markets in sense of how central bankers can intimidate market participants more than the prevailing macroeconomic landscape. On the macroeconomic backdrop there were few things to cheer about, as GDP growth numbers looked better than feared, inflation numbers took a respite, and job numbers continued to paint a US economy still in good shape. On the contrary, the European economy is facing a very difficult time following Russia cutting its gas supplies in retaliation to economic sanctions brought about by the conflict in Ukraine. These travails are compounded by a weakening Euro which exacerbate an already apparent trading deficit. In China, apart from the real estate sector and consumer spending recent data, which remain soft, the latest covid outbreaks triggered fresh lockdowns which in turn have lowered further economic growth expectations for this year.

From the monetary front, the Jackson Hole summit underlined what worries central bankers are facing. It set a clear line within the FED’s dual mandate whereby reigning inflation is the main focus even at the expense of an economic downturn. Likewise, the ECB has gotten bolder in countering inflation in spite of the current macroeconomic backdrop making its commitment as difficult to keep as it can possibly be.

In August equity markets reversed to a risk-off mode following the realisation that the FED now has other priorities, rather than the easing measures which cheered markets for the past 15 years. As corporate earnings remain the only apparent pillar of future market growth, there is quite an amount of uncertainty on how the markets will perform by the end of the year. Optimists look on to statistical market performance following an underperforming first half of the year in the past, while pessimists are just contemplating fundamental economic indicators.

Market Environment and Performance

Purchasing Manager Index (PMI) data continued painting a somewhat gloomy picture of the Euro economic area as manufacturing and services noted a sharp deterioration in the rate of growth, pointing to a second contraction in activity since February 2021. The August manufacturing PMI reading of 49.6 was a fall at a similar pace to that seen last month, as new orders declined sharply while services revolved in contraction territory. Pressured by elevated energy costs and the continued acceleration in food prices and services, inflationary pressures persisted. In August, the annual inflation rate increased to a new record high of 9.1%. Core inflation, which excludes transitory or temporary price volatility, increased to a record high of 4.3 per cent from 4.0 per cent in the previous month.

Aggregate business activity in the US pointed to a solid contraction across the private sector. Notably, the Composite PMI reading of August fell to 45 from 47.7 in July, as a notable contraction of the services sector was observed.

Equity markets were conditioned by the induced FED sell-off at the Jackson Hole summit. In the end, a classical risk-off positioning would have been a winning strategy during the month, with only energy and utilities sectors gaining ground. US markets were positively influenced by a surging dollar, while European markets have been conditioned by the prospects of a very difficult winter induced by Russia cutting its gas supplies. Emerging markets continued their attempt of forming a multi-year bottom, although the Covid 19 zero-policy practiced by China is still having a negative impact on its economic growth fortunes this year. The S&P 500 index fell by 2.88%, as energy had a positive performance, while healthcare and technology finished the month on the other end of the spectrum. In Europe, the EuroStoxx50 and the DAX lost 5.15% and 4.81% respectively, as all sectors except energy ended the month in negative territory. From the fixed income side, July’s relief witnessed across financial markets was shortly lived as mounting concerns over the economic outlook remained. A risk-off mode transpired. Global high yield corporate credit saw a loss of 1.17%. On a year-to-date, performance remains in the red at -11.92%.

Fund performance

In the month of July, the CC Global Balanced Income Fund, driven by the negative performance across both equity and credit markets, headed lower, registering a loss of 1.92% and partly reversing the previous month gains. Throughout the month the Manager continued to seek pockets of value by looking into attractive equity and credit equity stories, to achieve the best performance within such mandate. While still maintaining adequate cash levels, the Manager increased the fund’s exposure to large cap equity names, namely Kering, Taiwan Semiconductors, Mastercard, and UPS. On the credit side, the manager took the opportunity of buying at attractive entry points following the widening in spreads observed which may yield capital appreciation.

Market and investment outlook
Going forward, the Manager holds to the conservative camp as regards the macroeconomic backdrop given expectations of a protracted inflationary environment and a recessionary environment in Europe. While the message from the FED regarding its commitment to tackling inflation has been clearly received, it is not clear at all how markets will associate future economic data points to such intentions. From a credit point of view, higher yields are inevitable given the recent Central Bank moves, and thus despite this will trigger numerous opportunities, it will also condition the fixed income asset space.

From the equity front, the Manager believes that expectations for an erosion in earnings expectations consensus will continue to build a rather negative sentiment regarding future market returns, particularly on the backdrop of increasing bond yields. The Manager keeps its conservative stance, particularly on the European geography economic fortunes, and consequently over its capital market performance expectations. Playing safe remains the preferred route in navigating this turbulent market.