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

December 2019

As anticipated, tensions between the U.S. and China eased toward the end of the year, following a phase-one deal agreement between the two most powerful economies in the world, which in turn diminished trade war escalations. This boosted confidence and lessened uncertainty across markets, which closed-off the year with remarkable gains, particularly within the equity space. The news came after 20 months of on-and-off negotiations and tariff escalations that unsettled markets and damped global economic growth.

Although a phase-one deal proved important to avoid a direct impact on the consumer at large, some of the biggest sources of strain in the bilateral relationship, such as China’s use of industrial subsidies and state-owned enterprises were left at bay, leaving these thorny issues to a later stage.

In Europe, markets eagerly awaited economic data points, in order to shed further light on the direction of the economy. The region’s composite PMI remained unchanged at 50.6 in December, slightly below market expectations of 50.7. Meanwhile, Eurozone’s inflation rate rose to 1.3 percent year-on-year in December 2019, from 1 percent in the previous month. It is worth noting that the latter rate is the highest since June, and was mainly boosted by a rebound in energy prices and a faster increase in unprocessed food costs.

Furthermore, on the political front, Boris Johnson as predicted won big at the UK general election, paving way for Brexit to take place. The expectation of, along with the emphatic victory itself, resulted in the sterling registering one of its biggest ever one-day gains. Similarly, upon the news, which have somewhat diminished uncertainties, the UK 10 year yield increased to 0.82%, the highest since August.

Looking at the fixed income asset class per se, government bond yields continued to trade within a range, as investors continued to be conditioned by the better than expected economic data. Indeed, the mostly sought benchmark, the German Bund closed the month at -0.19 percent, up from -0.28 percent at the beginning of the same month. The risk-off mode in the last days of the year was also reflected in risky bonds with European HY registering a monthly gain of 0.97 percent.

The CC Euro High Income fund closed the month on a strong tone by locking in a 1.6 percent gain, thus outperforming its internal comparable benchmark by circa 0.63 percent, while the fund posted a 7.5 percent performance net of fees for 2019. The main outperformance was brought about by Aldesa, the Spanish construction company, which saw its’ price surging following the announcement that China Railways will be acquiring 75 percent of the company. Furthermore, the higher beta names, such as CMA CGM, the French container and shipping company, continued to perform well on easier trade tensions, in addition to the announcement by the company of asset disposals.

Moving into 2020, the Manager believes that returns within the fixed income space will be primarily generated through the carry trade. Central Banks will continue to be accommodative, a positive for credit markets, however one should also consider the current tight spreads at which risky assets are trading. In this regard, the Manager will continue to adopt its bottom-up approach in order to identify value