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

April 2020

Risk assets have rallied throughout the month of April as the fear and panic associated with the outbreak of the COVID-19 virus, which lead to black-swan events in March were eased by government policy interventions. In our view, the propagation of the shock to financial markets due to the virus outbreak is directly linked to the evolution of the virus and the duration of the containment measures. 

Indeed the swift actions taken primarily by Federal Reserve (Fed), emerged is crucial in calming waters across the credit space. Despite that initially markets were not impressed by actions taken by major central banks, the decision taken by the Fed on the 9th of April, in which it expanded its list of eligible bonds, was a clear signal that monetary politicians will do whatever it takes. The move eased both market and corporate liquidity tensions. In fact, following the announcement we’ve saw healthier liquidity in secondary markets, while the primary market re-opened following a standstill month in March. 

The more agile approach from the U.S. was also crucial in transmitting market confidence. The U.S. launched an additional $484 billion relief package, including a $321 billion top-up of its funding for small businesses. That takes the fiscal support passed by Congress to nearly $3 trillion in the past two months. Moreover, the Federal Reserve built on its “whatever it takes“ approach to help the economy through the coronavirus shock and ensuring markets function properly. According to economists worldwide, the Fed’s balance sheet will more than double to $11 trillion by year-end. Indeed, central bank policy has moved from mostly alleviating the dysfunction of market pricing and tightening of financial conditions to ensuring credit flows to businesses and local governments. The recently announced extraordinary measures by central banks, including purchases of corporate debt provide a favourable back -drop for credit. 

From the macroeconomic front, the U.S. reported a contraction in Manufacturing, with the PMI deteriorating to 36.1 from 48.5 in March, pointing to a continued contraction in the manufacturing sector, the worst since August of 2009. Similarly, U.S. Services PMI continued its decline, with surveys expecting it to drop to 30.0 from 39.8 in the previous month. New business contracted at a record pace, with exports also falling sharply, as the coronavirus pandemic led to business closures and sharply reduced client demand. From the employment front, the number of Americans filling for unemployment benefits resumed its record breaking pace, with claims piling up in the month of April at record levels, with 5.2 million claims in the second week and 4.4 million claims in the 3rd week of April.

Yields remained hovering around record lows, the U.S. mostly sought benchmark; the 10-year Treasury yield, tightened marginally by 3.8 basis points for the month of April after tightening considerably during the third week of April, closing the month at .642 per cent. 

The CC Global High income fund continues to outperform comparatively given its underweight position in Energy names. In the month of April the fund recouped 4.8 percent and continues to outperform its internal comparative benchmark by circa 350bps. Throughout the month, the fund continued to benefit from its underweight exposure to the energy sector, which continued to experience volatile sessions which are now more aligned to the demand woes brought about by covid-19. Going forward the Manager believes that credit markets will continue to be supported by the actions taken by the Fed. To this end the Manager believes that the fund is well positioned.