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

December 2019

With the December 15th deadline looming large and UK elections on the brink of taking place, December, as expected, proved to be an eventful month on the political front.

As anticipated, tensions between the U.S. and China significantly eased towards the end of the year, when the two nations agreed a phase-one deal to ratchet down the trade war, this boosting confidence and lessening uncertainty across markets. The news came after 20 months of on-and-off negotiations and tariff escalations that unsettled markets and damped global economic growth.

The agreement between the world’s two largest economies, amongst other, commits China to; buy at least $40bn worth of U.S. agricultural goods annually, tighten protection for U.S. intellectual property, and prohibits the forced transfer of technology from U.S. corporations. In exchange, Washington agreed to cut back on tariffs previously introduced, whilst agreeing not to proceed with a new escalation in levies on Chinese consumer goods.

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.

From the macroeconomic front, the U.S. reported a slightly lower Manufacturing PMI to 52.4 from 52.5 in December. Meanwhile, U.S. services PMI was revised higher to a five-month high of 52.8 from a preliminary estimate of 52.2, and higher than November’s final reading of 51.6. In addition, from the employment front, the number of Americans filing for unemployment benefits edged down by 2,000 people, to 224,000, beating market expectations.

Meanwhile, the U.S. Treasury Yields continued to trade within a range, with the 10-year reaching a high of 1.954 percent for the month, following the risk-on mode on a U.S.-China phase one agreement. Albeit hovering at higher levels when compared to recent months, the U.S. Treasury yields are relatively still depressed, when compared to the levels at the beginning of the year, mainly following the announcement by the Fed that rate hikes will be paused, thus maintaining a more accommodative stance. Global HY bonds closed-off the year on a strong note, as investors re-shifted their assets to the more risky segments.

The CC Global High Income fund closed the month up 0.93 percent, while on a year-to-date basis it posted a 10.3 percent gain with strong risk adjusted metrics when compared to its peers. In the month, the Manager opened an exposure in Extended Stay Hospitality, a classified REIT, which operates within the budget hotel industry. A BB- rated credit story with cash flow visibility, which translates in benign credit metrics. Furthermore, additional weightings to the meat industry were added through Marfrig, as the credit story continues to improve on the basis of a turnaround in the Brazilian economy, in addition to the boost in sales triggered through the Asian swine flu, which impacted positively the sector.

Moving in 2020, the Manager believes that the EM space might offer more pockets of value. Given a maintained accommodative monetary stance, a stance which EM Central Banks are also following suite, EM HY bonds should continue to offer value. Furthermore, selective U.S. HY will continue to offer value and thus the Manager believes that through a diligent bond picking process, the fund should continue to perform well in 2020.