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

August 2021

Since first detected in January 2020, the coronavirus pandemic and ensuing global response have dictated economic activity and markets way forward. Markets initially headed significantly lower as the economic landscape, following the imposition of movement restrictions, deteriorated. However, a concerted effort by both Central banks and governments led to what we are witnessing today – a robust economic recovery and upward trajectory in financial markets. 

From an economic viewpoint, the path towards a full recovery, proved bumpier than previously anticipated. A vaccination drive taking long to pick-up speed along with a more severe wave of infections, lessened the pace of the recovery. The outlook, albeit currently faced with a slowdown in growth and a rapid increase in infections, seems benevolent.

The Delta variant, first originated in India and considered to be significantly more transmissible than previous strains, is said to be behind the recent rapid rise in infections. Countries witnessing a rise in infection rate, led their authorities to re-think their way forward, with some resorting to a re-introduction of restrictive measures. Some, also announced booster programmes to deliver third doses to their population.

The Federal Reserve’s (Fed) annual Jackson Hole symposium was highly anticipated. Jerome Powell struck a cautious note in his statement, stating that while the US economy had made progress on some important targets, particularly on inflation, tapering too aggressively may derail progress at a sensitive time, reiterating a desire to see further progress in the labour market. Although broadly perceived as dovish (supporting low-interest rates and an expansionary monetary policy), Powell’s comments were in-line with expectations that tapering could begin this year. The boost to sentiment overshadowed worries over Hurricane Ida and the Delta variant.

Although the developed market world appears to be at or just past the peak rate of growth, economic data has largely remained positive.

In August, the U.S. manufacturing PMI stood at 61.1, little-changed from a preliminary estimate of 61.2, but down from a record of 63.4 in July. The reading pointed to the slowest growth in factory activity in 4 months as output growth was reportedly hampered by capacity constraints and material shortages. Lead times for inputs extended further as cost burdens soared, with the pace of inflation reaching a fresh series high. The expansion was supported by steep upturns in production and new orders. Albeit portraying robust growth, a pullback in the rate of expansion was also observed in the contact-intensive services segment. In the month, services PMI was revised slightly higher to 61.7, upwardly revised from 61.5, yet significantly lower from July’s 65.9 as business activity, new orders, and employment dropped.

Annual inflation rate in the U.S. remained steady at 5.4 per cent. In 2021, inflation has largely been on the rise amid low base effects from an unprecedented 2020 and as the economic recovery picks up, restrictions ease, and demand surges amid widespread vaccination programmes and fiscal support. Month-on-month, the Consumer Price Index (CPI) increased by 0.5 per cent on a seasonally adjusted basis after rising 0.9 per cent in June. 

In regard to the labour market, the US economy added 235,000 jobs in August of 2021, the lowest in 7 months and significantly below forecasts of 750,000. A surge in Coronavirus infections is said to may have discouraged companies from hiring and workers from actively seeking employment. August’s jobs report saw wages rise by 0.6% month over month.

Albeit concerns over the Delta variant and signs of global growth momentum possibly easing in developed world, corporate credit largely performed well in August. High yield credit outperformed its higher-rated counterparts, generating total positive returns as sovereign yields reversed some of the recent downward moves. Indeed, the benchmark U.S. 10-year Treasury yield, closed the month 9bps higher at 1.31 per cent – a figure which remains significantly below high’s witnessed earlier this year, revolving above the 1.70 per cent levels.

Throughout the month of August, the CC Global High Income Bond Fund rose by 0.53 per cent, with a year to date outperformance over the internal comparable benchmark. Throughout the month the Manager continued to seek pockets of value by looking into attractive credit stories, primarily within the basic materials and communications segment.  Among other names, the Manager increased its exposure in American chemical company, Chemours and opened a position in Chartered Communications given its resilient model aided by a relatively stable sector.

Albeit downside risks, specifically related to the health crisis remain, the manager remains constructive within the high yield space. Going forward, the manager believes that credit markets will continue to be supported by the actions taken by the Federal Reserve as well as the uplift from the sequential easing of coronavirus-induced restrictions and vaccination developments.