Global Balanced Income Fund Distributor

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 asset 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 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

March 2021

The first quarter of the year was dominated by rising bond yields and a value-led equity market rally. The two key drivers of this performance were the Democrat victory in Georgia at the start of the year, paving the way for massive further US fiscal stimulus, and the success of the vaccine rollout in the US and UK. It is now just over a year since equity markets bottomed and MSCI world has rallied 79% since then and is 18% above its pre-Covid highs and up 5% year to date (ytd). The 10-year US Treasury yield now stands at 1.75%, vs. 0.5% at the low in August and 0.9% at the start of the year.

The rise in bond yields has been closely correlated with significant outperformance for financials and value stocks. Value stocks are up 9.8% ytd compared with 0.3% for growth stocks. Higher commodity prices have also helped value stocks, with oil up 22% and copper up 13% ytd. The common theme driving all these moves has been rising optimism about the outlook for global growth.

With over 37% of American and 58% of British adults now having received at least one dose of vaccine and the number of people being hospitalised with Covid much lower than at the start of the year, the continued rally in these equity markets makes sense, as investors look ahead to a hopefully sustainable reopening of their economies. Small cap stocks, which tend to be more domestically focused, have performed particularly well, with the Russell 2000 up 12% and the UK FTSE Small Cap index up 9% ytd. 

But even markets where the vaccine rollout has significantly lagged the UK and US have performed well. Eurozone equities are up 8% and Japanese equities are up 9%, despite these regions having vaccinated only about 11 and 1% of their populations, respectively. Both have been helped by a strong rebound in global goods demand, and financials have benefited from steeper yield curves. Despite low vaccination rates, Japan has seen very few Covid cases, but Europe is seeing cases increase, which could delay the domestic recovery. 

Business surveys improved in March, with manufacturing expanding strongly in Europe, the US and UK. The US service sector continued to perform well, but the most notable improvement was in the UK service sector, with businesses noting improving consumer confidence and signs of pent-up demand. The European service sector was the clear laggard.

March also saw the passage of President Biden’s bumper stimulus package, worth 9% of US GDP. This has led to upgrades in consensus forecasts for US growth this year, with 7% growth now expected. Biden also doubled his vaccination goal from 100 million to 200 million in his first 100 days.

Some investors have worried that the size of the US stimulus, combined with pent-up savings, could lead to a pickup in inflation, potentially leading the Federal Reserve to tighten policy to an extent that could be damaging for equity markets. However, despite upgrading its growth forecasts for this year and expecting unemployment to decline to 4.5% by the end of this year and 3.5% by the end of 2023, the Fed does not believe inflation will be sustainably above target and still expects not to raise rates before 2024.

Emerging market equities have had a difficult few weeks after a strong start to the year, ending the quarter up 2%. Chinese equities sold off from mid-February; however, we believe that concerns around moderate policy tightening are overdone. Given the attractive long-term outlook for Asia, we are inclined to view the recent pullback as an opportunity for long-term investors, rather than a reason for significant concern.

Potentially of more concern are the increases in Covid infections in some other parts of emerging markets, such as Brazil and India. However, India may be less disrupted by another wave of infections given its young population, with only 7% of people aged over 65.

The Investment Manager believes that the trade has further to run and that Treasury yields can still move higher by the end of the year. With equity markets having risen significantly over the last year, the gains from here are likely to be at a slower pace and with some bumps in the road. However, assuming the vaccines are effective at preventing hospitalisation against all variants of the virus, growth should be set to boom as soon as restrictions can be lifted. Against that backdrop, the Investment Manager remains positive on the outlook for equities relative to bonds.