Global High Income Bond Fund Accumulator

The CC Global 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

February 2021

The worldwide rollout of the vaccines remained a key topic through the month of February. At the end of February, the Food & Drug Administration approved Johnson & Johnson single use coronavirus vaccine for emergency use in the U.S. Along with increasing production of the Pfizer and Moderna vaccines, the supply of vaccines is expected to grow significantly by spring.

The U.S. has been averaging 1.7 million vaccines administered by the end of February. In the U.S., more individuals have received at least one dose than have tested positive for COVID. As of the end of February, approximately 50 million Americans, which equates to around 15% of the population, had received the first shot with approximately 25 million having received the second as well.

The re-opening and reflation talk gathered pace with markets increasingly worried by the rise in inflation expectations putting upward pressure on yields, particularly in the longer end of the curve. The US 10-year benchmark reached 1.53% from 1.079% at the beginning of February as the curve steepened significantly, sending risk assets spinning on tapering concerns. The US 5-year yield reached 0.80%, reflecting revised policy rate expectations. Nevertheless, US breakevens suggest that investors expect core PCE inflation to approach 2%. UK Gilt and German Bund yields were back to their pre-pandemic levels.

Jerome Powell affirmed that the central bank will maintain an accommodative monetary policy to support the economy and employment and temper any surge in inflation. During a hearing in front of the Senate and House of Representatives committees on financial services, he stressed that the US economy still needed the support measures implemented since the start of the pandemic and that if the recovery could encourage a pick-up in inflation, it would probably not be a worrying level, saying it might take three years for inflation to reach the FED target.

With core yields drifting up, investment grade underperformed the high yield spectrum. Spreads tightened, mostly on the high beta names. Demands from investors for income-bearing bonds helped the European high-yield market to set a number of records in terms of issuance. Supermarket Asda sold the largest ever sterling corporate bonds (£2.75bn) and Ardagh Metal offered the biggest ever green high yield note ($2.8bn). EG Group brought the largest private placement. Yields of the riskiest junk bonds and lower ranking bank debt are back to pre-pandemic levels, which is quite remarkable.

Data has largely reflected the mood within markets and unfolded as expected. In February, U.S. reported a continued recovery with better than expected PMI data for both manufacturing and services. U.S. manufacturing PMI came in at 58.6 compared to 58.5 forecasted by analysts. U.S. services PMI continued its upward trend, rising to 59.8 compared to 58.3 and expectations of 58.9.

This confirms that the economy is on its way in its recovery path. The trend appears to be stronger in the U.S. than its European counterpart, whose lifting of restrictions has been more subdued comparatively. Indeed Core Retail Sales improved dramatically through the month of February, up 5.9% compared to a forecasted 1% increase, and a drop of 1.8% in January.

Yields on Europe’s most sought after benchmark; the 10-year German Bund, closed higher than the previous month at -0.257 per cent compared to -0.513 percent at the beginning of February. Similarly, Italy’s 10-year sovereign yield closed the month 15bps higher at 0.771 per cent, despite the premium to the German Bund tightened as Italy welcomed Mario Draghi.

Within the HY asset space, U.S. high yield under performed better than its European counterparts, returning 0.348 per cent. The asset class continued to benefit from the stimulus package and fed commitment to maintain rates low for the foreseeable future.

Throughout the month of February, the CC Global High Income Bond Fund performing slightly better than its benchmark. The CC Global High income fund increased by 0.20 per cent, compared to a 0.13 per cent increase in the benchmark. Throughout the month the Manager continued to seek pockets of value by looking into attractive credit stories, primarily within the aerospace segment.

Going forward the Manager believes that credit markets will continue to be supported by the actions taken by the Fed as well as the uplift from the sequential easing of Covid-19 restrictions and vaccination developments.