Investment Objectives

The Fund aims to maximise the total level of return for investors by investing, mainly in a diversified portfolio of bonds and other similar debt securities. In pursuing this objective, the Investment Manager shall invest primarily in a diversified portfolio of corporate & government bonds maturing in the medium term, with an average credit quality of “Ba3” by Moody’s or “BB-” by S&P, although individual bond holdings may have higher or lower ratings. The Fund can also invest up to 10% of its assets in Non-Rated bond issues.

The Fund is actively managed, not managed by reference to any index.

The Fund is classified under Article 6 of the SFDR meaning that the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.

Investor Profile

A typical investor in the CC High Income Bond Fund Accumulator is:

  • Seeking to accumulate wealth and save over time in a product that re-invests gross dividends automatically.
  • Planning to hold their investment for the medium-to-long term so as to benefit from the compound interest effect.

Fund Rules

The Investment Manager of the CC High Income Bond Fund Accumulator – EUR 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 of the fund. Some of the restrictions include:

  • 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

Commentary

October 2023

Introduction

Throughout October, the prevailing narrative driving bond markets was the expectation that interest rates would need to remain high for an extended period. A combination of buoyant economic data, notably a robust labour market, persistently high inflation, and growing concerns over US Treasury supply to cover the surging budget deficit kept the pressure on US yields. Notably, the US 10-year Treasury yield pushed above 5.0% for the first time since 2007. Additionally, renewed geopolitical tensions in the Middle East further dampened risk appetite.

From a performance viewpoint, the rout in the bond market sustained. Government bond returns were generally negative across developed markets as yields rose to multi-year highs, while widening spreads dented monthly returns for both investment grade and high yield corporate credit. To-date, the latter remains the top performing segment this year, with European and US benchmarks returning c. 5.80% and 4.70%, respectively. Indeed, in such rising yield environment, the shorter-dated profile of high yield bond benchmarks continued to be a source of resilience. Commodities have on the other hand, performed well on the month, with energy prices surging and investors seeking safety in gold.

Market environment and performance

Concerns about a potential recession in the Euro area, earlier in the year dismissed due to the resilience of economic activity, have not only resurfaced but intensified. A negative Q3 GDP growth rate (-0.1%), worse than market forecasts of a flat reading affirmed such worries. Additionally, the ongoing decline in private sector activity continues to cast doubt on the prospects of a recovery, at least in the very near term. In October, Purchasing Managers’ Index (PMI) indicators continued to show signs of weakness amid a third successive contraction in services (reading 47.8 v a previous month reading of 48.7) and a continued downturn in manufacturing (reading 43.1 v a previous month reading of 43.4). Overall, fragile demand conditions were a notable aspect of the survey results, with new business intakes declining at the fastest rate since the sovereign debt crisis, when excluding the months impacted by the coronavirus pandemic. Furthermore, employment stagnated, ending a sustained period of job creation. On the pricing front, both goods and services saw prices rising at a slower pace.  Meanwhile, the rate of input cost inflation cooled.

In October, annual inflation rate in the Euro Area declined to 2.9%, reaching its lowest level since July 2021, returning closer to the ECB’s 2% target, a preliminary estimate showed. Prices for energy, food, alcohol, and tobacco, and non-energy industrial goods cooled. Meanwhile, services inflation remained relatively stable. Core prices, which exclude volatile food and energy prices, also eased to 4.2% compared to 4.5% in the previous month.

From a policy front, the ECB kept interest rates at multi-year highs during its October meeting, marking a significant shift from its streak of rate hikes and reflecting a more cautious “wait-and-see” stance among policymakers, influenced by the gradual easing of price pressures and concerns about an impending recession. This decision follows a series of ten successive rate increases since July 2022, which elevated the main refinancing operations rate to 4.5% and the deposit facility rate to an all-time high of 4%.

In the United States, robust job data, strong retail sales, and a blowout GDP print of 4.9% annualised for Q3 2023, exceeding market forecasts of 4.3% and accelerating from the 2.1% advance in Q2 affirmed the belief, of a strong and resilient US economy. Industrial activity as measured by the latest purchasing managers’ index (PMI) also suggested expansion, with the composite PMI reading hitting 50.7 in October, up from 50.2 the previous month as manufacturers and service providers experienced a quicker rise in output, despite fragile demand conditions. Meanwhile, new orders and exports continued to decline, while employment levels grew, the latter largely driven by the services sector. Regarding prices, the rate of input and output cost inflation slowed to a three-year low.

Annual rate of inflation in the US remained slowed to 3.2% in October, below market expectations of a decline to 3.3%, as energy costs dropped. Core inflation which excludes volatile items such as food and energy too eased to 4.0%. From the employment front, hiring increased by 150k, half of a downwardly revised 297K in September, and below market forecasts of 180K, signalling a cooling labour market. Meanwhile, the unemployment rate rose to 3.9%, exceeding expectations. The nominal wage growth (4.1%) too showed signs of easing, increasing at the smallest pace since June 2021.

Fund performance

In October, the CC High Income Bond Fund headed lower, recording a loss of 0.69% from the previous month’s close, in line with performance observed across global high yield credit; a loss of c. 1.07%.

Throughout the month the Manager continued to take opportunity by re-tapping selective names which do offer value, notably, those which have only recently sought to refinance with coupons now more aligned to the current market environment. Also, allowing to increase the portfolio’s duration in a balanced manner.

Market and investment outlook

Hopes of an early end to the era of policy tightening faded at the end of the third quarter and persisted through October as the prospect of prolonged higher interest rates sank in, supported by resilient economic data. While acknowledging progress in the Fed’s fight against inflation and the downward pressure that tight policy is putting on both activity and prices, Jerome Powell affirmed the Fed’s intention to proceed cautiously. Indeed, policymakers will base decisions about the extent of further policy firming and the duration of restrictive policy on the totality of incoming data, the evolving outlook, and the balance of risks.

Buoyant economic data and discourse drove yields significantly higher. Such rise and thus subsequent tightening of financial conditions towards month-end lowered expectations of an imminent rate hike by the Fed. The US 10-year yield increased from 4.57% to 4.93%, while the two-year yield climbed from 5.05% to 5.10%.

As previously conferred, fixed income remains a compelling investment, especially as central banks appear to have reached the peak of their tightening cycle. The manager will continue to evaluate the market landscape and capitalize on attractive credit opportunities. In line with recent actions, the manager will continue to adjust the portfolio to match prevailing yield conditions. From a duration perspective, the Manager maintains the view that given the as-yet sticky inflation, duration increases shall be implemented, however in a measured and gradual manner.

A quick introduction to our Euro High Income Bond Fund

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Key Facts & Performance

Fund Manager

Jordan Portelli

Jordan is CIO at CC Finance Group. He has extensive experience in research and portfolio management with various institutions. Today he is responsible of the group’s investment strategy and manages credit and multi-asset strategies.

PRICE (EUR)

ASSET CLASS

Bonds

MIN. INITIAL INVESTMENT

€2500

FUND TYPE

UCITS

BASE CURRENCY

EUR

RETURN (SINCE INCEPTION)*

6.36%

*View Performance History below
Inception Date: 30 May 2013
ISIN: MT7000007761
Bloomberg Ticker: CALCHAR MV
Entry Charge: None
Total Expense Ratio: 1.75%
Exit Charge: None
Distribution Yield (%): N/A
Underlying Yield (%): 5.42
Distribution: N/A
Total Net Assets: €48.34 mn
Month end NAV in EUR: 115.95
Number of Holdings: 128
Auditors: Deloitte Malta
Legal Advisor: Ganado & Associates
Custodian: Sparkasse Bank Malta p.l.c.
% of Top 10 Holdings: 19.9

Performance To Date (EUR)

Top 10 Holdings

iShares USD High Yield Corp
2.9%
iShares Fallen Angels HY Corp
2.6%
4% JP Morgan Chase & Co perp
2.3%
7.5% Nidda Healthcare Holding 2026
1.9%
8.215% Encore Capital Group 2028
1.9%
iShares Euro High Yield Corp
1.8%
3.875% Allwyn International 2027
1.7%
2.5% Hapag-Lloyd AG 2028
1.6%
4.625% Volkswagen perp
1.6%
3.5% Eircom Finance DAC 2026
1.6%

Major Sector Breakdown*

Financials
12.1%
Asset 7
Communications
8.1%
Health Care
8.1%
Funds
7.4%
Consumer Discretionary
6.7%
Materials
4.4%
*excluding exposures to CIS

Maturity Buckets*

69.8%
0-5 Years
15.5%
5-10 Years
2.5%
10 Years+
* based on the Next Call Date

Credit Ratings*

Average Credit Rating: BB
*excluding exposures to CIS

Risk & Reward Profile

1
2
3
4
5
6
7
Lower Risk

Potentialy Lower Reward

Higher Risk

Potentialy Higher Reward

Top Holdings by Country*

United States
24.1%
Germany
11.8%
France
8.5%
Spain
5.2%
Brazil
4.4%
Italy
4.3%
Luxembourg
3.6%
Netherlands
3.2%
United Kingdom
3.1%
Malta
2.5%
*including exposures to CIS

Asset Allocation

Cash 4.8%
Bonds 87.8%
CIS/ETFs 7.4%

Performance History (EUR)*

YTD

0.65%

2022

-10.13%

2021

1.46%

2020

-0.14%

2019

7.48%

Annualised Since Inception*

0.59%

* The Accumulator Share Class (Class A) was launched on 29 May 2013. The Annualised rate is an indication of the average growth of the Fund over one year. The value of the investment and the income yield derived from the investment, if any, may go down as well as up and past performance is not necessarily indicative of future performance, nor a reliable guide to future performance. Hence returns may not be achieved and you may lose all or part of your investment in the Fund. Currency fluctuations may affect the value of investments and any derived income.
**Returns quoted net of TER. Entry and exit charges may reduce returns for investors.

Currency Allocation

Euro 64.6%
USD 35.4%
Other 0.0%

Risk Statistics

Sharpe Ratio
-1.02 (3Y)
-0.58 (5Y)
Std. Deviation
5.02% (3Y)
7.70% (5Y)

Interested in this product?

  • Investment Objectives

    The Fund aims to maximise the total level of return for investors by investing, mainly in a diversified portfolio of bonds and other similar debt securities. In pursuing this objective, the Investment Manager shall invest primarily in a diversified portfolio of corporate & government bonds maturing in the medium term, with an average credit quality of “Ba3” by Moody’s or “BB-” by S&P, although individual bond holdings may have higher or lower ratings. The Fund can also invest up to 10% of its assets in Non-Rated bond issues.

    The Fund is actively managed, not managed by reference to any index.

    The Fund is classified under Article 6 of the SFDR meaning that the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.

  • Investor profile

    A typical investor in the CC High Income Bond Fund Accumulator is:

    • Seeking to accumulate wealth and save over time in a product that re-invests gross dividends automatically.
    • Planning to hold their investment for the medium-to-long term so as to benefit from the compound interest effect.
    Investor Profile Icon
  • Fund Rules

    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
  • Commentary

    October 2023

    Introduction

    Throughout October, the prevailing narrative driving bond markets was the expectation that interest rates would need to remain high for an extended period. A combination of buoyant economic data, notably a robust labour market, persistently high inflation, and growing concerns over US Treasury supply to cover the surging budget deficit kept the pressure on US yields. Notably, the US 10-year Treasury yield pushed above 5.0% for the first time since 2007. Additionally, renewed geopolitical tensions in the Middle East further dampened risk appetite.

    From a performance viewpoint, the rout in the bond market sustained. Government bond returns were generally negative across developed markets as yields rose to multi-year highs, while widening spreads dented monthly returns for both investment grade and high yield corporate credit. To-date, the latter remains the top performing segment this year, with European and US benchmarks returning c. 5.80% and 4.70%, respectively. Indeed, in such rising yield environment, the shorter-dated profile of high yield bond benchmarks continued to be a source of resilience. Commodities have on the other hand, performed well on the month, with energy prices surging and investors seeking safety in gold.

    Market environment and performance

    Concerns about a potential recession in the Euro area, earlier in the year dismissed due to the resilience of economic activity, have not only resurfaced but intensified. A negative Q3 GDP growth rate (-0.1%), worse than market forecasts of a flat reading affirmed such worries. Additionally, the ongoing decline in private sector activity continues to cast doubt on the prospects of a recovery, at least in the very near term. In October, Purchasing Managers’ Index (PMI) indicators continued to show signs of weakness amid a third successive contraction in services (reading 47.8 v a previous month reading of 48.7) and a continued downturn in manufacturing (reading 43.1 v a previous month reading of 43.4). Overall, fragile demand conditions were a notable aspect of the survey results, with new business intakes declining at the fastest rate since the sovereign debt crisis, when excluding the months impacted by the coronavirus pandemic. Furthermore, employment stagnated, ending a sustained period of job creation. On the pricing front, both goods and services saw prices rising at a slower pace.  Meanwhile, the rate of input cost inflation cooled.

    In October, annual inflation rate in the Euro Area declined to 2.9%, reaching its lowest level since July 2021, returning closer to the ECB’s 2% target, a preliminary estimate showed. Prices for energy, food, alcohol, and tobacco, and non-energy industrial goods cooled. Meanwhile, services inflation remained relatively stable. Core prices, which exclude volatile food and energy prices, also eased to 4.2% compared to 4.5% in the previous month.

    From a policy front, the ECB kept interest rates at multi-year highs during its October meeting, marking a significant shift from its streak of rate hikes and reflecting a more cautious “wait-and-see” stance among policymakers, influenced by the gradual easing of price pressures and concerns about an impending recession. This decision follows a series of ten successive rate increases since July 2022, which elevated the main refinancing operations rate to 4.5% and the deposit facility rate to an all-time high of 4%.

    In the United States, robust job data, strong retail sales, and a blowout GDP print of 4.9% annualised for Q3 2023, exceeding market forecasts of 4.3% and accelerating from the 2.1% advance in Q2 affirmed the belief, of a strong and resilient US economy. Industrial activity as measured by the latest purchasing managers’ index (PMI) also suggested expansion, with the composite PMI reading hitting 50.7 in October, up from 50.2 the previous month as manufacturers and service providers experienced a quicker rise in output, despite fragile demand conditions. Meanwhile, new orders and exports continued to decline, while employment levels grew, the latter largely driven by the services sector. Regarding prices, the rate of input and output cost inflation slowed to a three-year low.

    Annual rate of inflation in the US remained slowed to 3.2% in October, below market expectations of a decline to 3.3%, as energy costs dropped. Core inflation which excludes volatile items such as food and energy too eased to 4.0%. From the employment front, hiring increased by 150k, half of a downwardly revised 297K in September, and below market forecasts of 180K, signalling a cooling labour market. Meanwhile, the unemployment rate rose to 3.9%, exceeding expectations. The nominal wage growth (4.1%) too showed signs of easing, increasing at the smallest pace since June 2021.

    Fund performance

    In October, the CC High Income Bond Fund headed lower, recording a loss of 0.69% from the previous month’s close, in line with performance observed across global high yield credit; a loss of c. 1.07%.

    Throughout the month the Manager continued to take opportunity by re-tapping selective names which do offer value, notably, those which have only recently sought to refinance with coupons now more aligned to the current market environment. Also, allowing to increase the portfolio’s duration in a balanced manner.

    Market and investment outlook

    Hopes of an early end to the era of policy tightening faded at the end of the third quarter and persisted through October as the prospect of prolonged higher interest rates sank in, supported by resilient economic data. While acknowledging progress in the Fed’s fight against inflation and the downward pressure that tight policy is putting on both activity and prices, Jerome Powell affirmed the Fed’s intention to proceed cautiously. Indeed, policymakers will base decisions about the extent of further policy firming and the duration of restrictive policy on the totality of incoming data, the evolving outlook, and the balance of risks.

    Buoyant economic data and discourse drove yields significantly higher. Such rise and thus subsequent tightening of financial conditions towards month-end lowered expectations of an imminent rate hike by the Fed. The US 10-year yield increased from 4.57% to 4.93%, while the two-year yield climbed from 5.05% to 5.10%.

    As previously conferred, fixed income remains a compelling investment, especially as central banks appear to have reached the peak of their tightening cycle. The manager will continue to evaluate the market landscape and capitalize on attractive credit opportunities. In line with recent actions, the manager will continue to adjust the portfolio to match prevailing yield conditions. From a duration perspective, the Manager maintains the view that given the as-yet sticky inflation, duration increases shall be implemented, however in a measured and gradual manner.

  • Key facts & performance

    Fund Manager

    Jordan Portelli

    Jordan is CIO at CC Finance Group. He has extensive experience in research and portfolio management with various institutions. Today he is responsible of the group’s investment strategy and manages credit and multi-asset strategies.

    PRICE (EUR)

    ASSET CLASS

    Bonds

    MIN. INITIAL INVESTMENT

    €2500

    FUND TYPE

    UCITS

    BASE CURRENCY

    EUR

    RETURN (SINCE INCEPTION)*

    6.36%

    *View Performance History below
    Inception Date: 30 May 2013
    ISIN: MT7000007761
    Bloomberg Ticker: CALCHAR MV
    Entry Charge: None
    Total Expense Ratio: 1.75%
    Exit Charge: None
    Distribution Yield (%): N/A
    Underlying Yield (%): 5.42
    Distribution: N/A
    Total Net Assets: €48.34 mn
    Month end NAV in EUR: 115.95
    Number of Holdings: 128
    Auditors: Deloitte Malta
    Legal Advisor: Ganado & Associates
    Custodian: Sparkasse Bank Malta p.l.c.
    % of Top 10 Holdings: 19.9

    Performance To Date (EUR)

    Risk & Reward Profile

    1
    2
    3
    4
    5
    6
    7
    Lower Risk

    Potentialy Lower Reward

    Higher Risk

    Potentialy Higher Reward

    Top 10 Holdings

    iShares USD High Yield Corp
    2.9%
    iShares Fallen Angels HY Corp
    2.6%
    4% JP Morgan Chase & Co perp
    2.3%
    7.5% Nidda Healthcare Holding 2026
    1.9%
    8.215% Encore Capital Group 2028
    1.9%
    iShares Euro High Yield Corp
    1.8%
    3.875% Allwyn International 2027
    1.7%
    2.5% Hapag-Lloyd AG 2028
    1.6%
    4.625% Volkswagen perp
    1.6%
    3.5% Eircom Finance DAC 2026
    1.6%

    Top Holdings by Country*

    United States
    24.1%
    Germany
    11.8%
    France
    8.5%
    Spain
    5.2%
    Brazil
    4.4%
    Italy
    4.3%
    Luxembourg
    3.6%
    Netherlands
    3.2%
    United Kingdom
    3.1%
    Malta
    2.5%
    *including exposures to CIS

    Major Sector Breakdown*

    Financials
    12.1%
    Asset 7
    Communications
    8.1%
    Health Care
    8.1%
    Funds
    7.4%
    Consumer Discretionary
    6.7%
    Materials
    4.4%
    *excluding exposures to CIS

    Asset Allocation

    Cash 4.8%
    Bonds 87.8%
    CIS/ETFs 7.4%

    Maturity Buckets*

    69.8%
    0-5 Years
    15.5%
    5-10 Years
    2.5%
    10 Years+
    * based on the Next Call Date

    Performance History (EUR)*

    YTD

    0.65%

    2022

    -10.13%

    2021

    1.46%

    2020

    -0.14%

    2019

    7.48%

    Annualised Since Inception*

    0.59%

    * The Accumulator Share Class (Class A) was launched on 29 May 2013. The Annualised rate is an indication of the average growth of the Fund over one year. The value of the investment and the income yield derived from the investment, if any, may go down as well as up and past performance is not necessarily indicative of future performance, nor a reliable guide to future performance. Hence returns may not be achieved and you may lose all or part of your investment in the Fund. Currency fluctuations may affect the value of investments and any derived income.
    **Returns quoted net of TER. Entry and exit charges may reduce returns for investors.

    Credit Ratings*

    Average Credit Rating: BB
    *excluding exposures to CIS

    Currency Allocation

    Euro 64.6%
    USD 35.4%
    Other 0.0%

    Risk Statistics

    Sharpe Ratio
    -1.02 (3Y)
    -0.58 (5Y)
    Std. Deviation
    5.02% (3Y)
    7.70% (5Y)
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