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

March 2019

The first quarter of the year was a breath of fresh air for investors from the adverse market condition registered in the latter stages of 2018; markets were bolstered on the back of the dovish approach taken by both the Federal Reserve and the European Central Bank.

Economically speaking, we are seeing positive signs from the trade war talks as President Xi and President Trump have formed a common ground. This has in fact given investors a boost in confidence as assets continued to rally. Having said that, the Investment Managers erred on the cautious side, acknowledging however that global economic data was nothing to be exuberant on.

Throughout the quarter, credit spreads tightened, as benchmark yields were driven lower. Worth mentioning however, that with the sharp decline in yields, spreads ended the quarter well above historical lows, which gives room for further possible spread tightening. There was also a marginal yield curve inversion of US Treasuries at the end of March due to the estimated global growth slowdown. That being said, the soft figures from China have made a U-turn to the positive; from factory activity reaching a three-year low in February, March proved to be a better month as strong manufacturing data was seen. Without a doubt, this helped ease investor worries as markets saw a shift from risk-free assets to more risky assets.

Moreover, Brexit still remains at the forefront of investor uncertainty having ended the month of March with the Parliament not agreeing with May’s divorce plan from the EU. To make matters worse, British lawmakers had to vote on various alternatives on the first day of April only to once again have no plan.

Throughout the quarter, given that the Fed hike proved not to emerge, the Managers opted to increase exposures in credit names that also published positive credit metrics such as Selecta and Gestamp. The fund ended the month close to fully invested leaving sufficient liquidity available however for the expected distribution due at the end of the month. Heading forward, the Investment Manager is of the opinion that we could well see credit markets perform relatively well in line with the more dovish stance and there is further room for credit spreads to tighten.