Euro High Income Bond Fund Accumulator

The CC Euro High Income Bond Fund Accumulator aims to maximise the total level of return for investors through investment in a diversified portfolio of Bonds. To achieve this objective, the Investment Manager invests primarily in a diversified portfolio of over 65 intermediate term, corporate & government bonds with maturities of 10 years and less.

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

• The fund may not invest more than 10% of its assets in the same company
• The fund may not keep more than 10% of its assets on deposit with any one credit institution. This limit may be increased to 30% in respect of deposits with an Approved Institution
• The fund may not invest more than 20% of its assets in any other other fund
• The fund may not carry out uncovered sales (naked short-selling) of securities or other financial instruments

July 2019

Markets saw a mixed sentiment throughout the whole of July; uncertainties revolving around the Fed’s decision to a rate cut along with ECB’s Mario Draghi hinting at easing were the stars of the month. Needless to say, investors were seen to take a cautious approach during the month after the rally seen in the month of June. By the end of July, the Fed cut rates by 25bps, a move which was not digested positively by markets that expected a more aggressive stance. On the other hand, Mario Draghi left rates unchanged, however indicated that the downward trend in data will be monitored and easing actions will be taken if deemed necessary.

Apart from the Fed and the ECB’s statement at the end of the month, markets saw top U.S and Chinese trade officials meet in Shanghai for talks in a bid to end a yearlong trade war, despite low expectations for progress and combative remarks from the US President. The next round of talks are scheduled for September.

Specifically in the Eurozone area, Greece’s election proved a positive for the country as the New Democracy party rose to power; the party has promised tax cuts financed by spending cuts in an attempt to support growth. On another note, Italy has continued to avoid censure from Brussels over the capping of its deficit. This, was digested positively with Italian sovereign debt being favoured by investors as Italian yields remained attractive in the region, impacted by the specifics risks. In contrast, Brexit remains a major issue for Europe given the new Prime Minister, Boris Johnson, has already started pinching the EU. He promised that the UK will leave the EU by the end of October no matter what, which led the sterling to tumble.

From the data front, markets also saw that the Eurozone’s manufacturing PMI revised slightly higher to 46.5 in July, still signalling the sharpest deterioration in operating conditions since December 2012. The rate of decline in new orders was the second highest recorded by the survey in just over six years amid ongoing trade tensions, difficulties in the automotive industry and political uncertainties, with new export orders falling the most since November 2011. Also, output fell the most since April 2013, whilst the reduction in purchasing activity was the steepest seen since the end of 2012. Both employment and stocks of purchases fell the most in nearly six years. On the price front, input costs dropped the most since April 2016 while output charges fell for the first time in three years. Looking ahead, business sentiment was the weakest since the end of 2012. Thus, an indeed tough month to which monetary politicians will need to look closely.

In the month, European High Yield gained 0.794 percent, trading tighter than their U.S. counterparts did.

In the month of July, the Manager opted in de-risking the portfolio due to specific risks – a move to protect the year-to-date performance. In addition, the Manager opted to take a tactical allocation by opening a position in a Portuguese Republic Government Bond to benefit from possibly a more easing tone by the ECB, in addition to the possibility that the country will be upgraded or have a positive change in outlook shortly. Going forward, the Manager believes that the maintained accommodative stance by leading central banks will sustain credit markets.