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

September 2019

The market performance during the month of September was primarily driven by the monetary decisions taken by the European Central Bank (ECB) and the Federal Reserve (Fed). Markets anxiously awaited their moves, in addition to the forward-looking tones on whether they hold the capacity and willingness to be more accommodative if the need arises.

Following remarkable pressures on the economic data front, the ECB announced a stimulus package, namely a fresh wave of asset purchases amounting to Eur20bn of bonds per month and a cut in the deposit rate by 10bps to -0.5 percent. The ECB’s rationale was based on expectations that risks remain tilted to the downside, triggered by the prolonged trade tensions and the rise of protectionism. The tone was also dovish due to a downward revision in inflation expectations when compared to previous projections, sighting a weaker growth environment. On the announcement, credit markets reacted positively – a move that faded away as investors continued to digest whether the new package will be enough to trigger the much-needed economic growth.

In the meantime, the economic date in the Eurozone continued to weaken, with the manufacturing PMI falling to 45.7 from the 47 level. This was also reflecting the steepest decline in Germany’s manufacturing PMI since June 2009; a decline which continued to pile pressures on the economic sentiment in the region.

European High yield closed the month relatively flat at -0.1%, due to the income returns, which mitigated the price movements seen in the month. In fact, from a price return perspective, European HY was down -0.4 percent in September, reflecting the widening in spreads on economic growth concerns.

In the month, the fund registered a positive performance of +0.3 percent, mainly reflecting the more prudent positioning of the Investment Manager which reduced the fund’s volatility. Going forward, given the already tight spreads within the HY space and an economic scenario, which is pointing to more downside risks, the Investment Manager shall be looking to maintain a prudent approach.