Balanced Strategy Fund

The Fund aims to achieve long-term capital growth by investing in a diversified portfolio of collective investment schemes.

The Investment Manager (“We”) invest in collective investment schemes (“CIS”) (including UCITS, exchange-traded funds and other collective investment undertakings) that invest in a broad range of assets, including debt and equity securities. In instances, this may involve investing in CISs that are managed by the Investment Manager.

The Investment Manager (“We”) aims to build a diversified portfolio spread across several industries and sectors.

The Fund is actively managed, not managed by reference to any index.

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

April 2022

Introduction
April, along the same route of the preceding three months and first quarter of the year proved negative for financial markets. Russia’s invasion in Ukraine, stringent Covid-19 policies in China once more prompting demand concerns and supply-chain disruptions, and expectations of a swift tightening in US monetary policy all weighed on sentiment. Global equity indices, notably the tech-heavy Nasdaq, headed substantially lower. Credit markets also came under pressure with investment grade and high-yield corporate credit delivering negative returns as treasury yields – pricing in the Fed’s hawkish stance – maintained the upward trajectory. Also, the positive correlation to US paper led European sovereign yields higher. 

Market environment and performance
The eurozone economy advanced by 0.2 per cent on quarter in the first three months of 2022, the least since the bloc exited a recession last year and below market expectations of a 0.3 per cent growth. Forward looking indicators, notably Purchasing Managers Index (PMI) data painted a somewhat mixed picture as services – benefiting from loosened coronavirus restrictions – expanded while manufacturing contracted. Price pressures remained, with energy and food prices continuing to contribute to a rise in annual inflation – a fresh record high at 7.5 per cent.

The US economy unexpectedly contracted by an annualized 1.4 per cent on quarter in the first three months of 2022 against expectations of a 1.1 per cent expansion as a record trade deficit and a decline in inventory investment weighed on. Aggregate business activity in the US continued to signal an expansion across the private sector. Such expansion, reading at 56, however proved slightly slower than the upturn at the end of Q1, as softer data in the service sector offset the faster expansion in manufacturing.  Annual inflation rate in the US slowed to 8.3 per cent in April, from 8.5 per cent in the previous month, yet exceeding market expectations of 8.1 per cent. Core inflation, which excludes transitory or temporary price volatility, slowed to 6.2 per cent from 6.5 per cent a month earlier.

Sovereign yields across both the single currency bloc and the US furthered on the strong upward trajectory witnessed in March, heading to the highest in years on expectations of more aggressive interest rate increases by major central banks and in spite of worsening sentiment due to China’s strict coronavirus curbs. ECB president Christine Lagarde repeated the message that asset purchases will end early in Q3 and rates could rise this year, but affirmed that the governing council will maintain “optionality”. Meanwhile, Chair of the Fed Jerome Powell signalled that a 50-basis point hike would take place in May to step-up the Fed’s efforts against inflationary pressures.  Overall, the yield on the benchmark 10-year German Bund and Treasury closed the month 39 and 60bps higher than the previous month end, at 0.94 and 2.93 per cent, respectively.

Equity markets had an awful performance in April as inflationary worries and consequent monetary tightening expectations have come to the fore. While such theme has been common across developed markets, US markets have underperformed compared to their European peers as the latter have already seen significant erosion year-to-date on growing concerns regarding their economic backdrop going forward into the year. Meanwhile emerging markets have seen further travails from the economic slowdown in China. The S&P 500 index fell by 4.19 per cent as the FED’s hawkish stance on inflation hammered cyclical sectors still trading at high multiples, such as technology and consumer discretionary. Consumer staples was the only sector which closed the month on a positive. In Europe, the EuroStoxx50 and the DAX lost 2.50 and 2.02 per cent respectively.

Fund performance
Performance for the month of April was -3.08 per cent for the CC Balanced Portfolio Fund. The fund continued to gradually tap the market following a period in which cash was consciously maintained in order to potentially take advantage from any market weakness. Indeed, April presented the perfect opportunity for long-term investors to tap the market.

Market and investment outlook
Going forward, the Manager sees the macroeconomic backdrop deteriorating, particularly in Europe as inflationary pressures start pinching disposable income. From a credit point of view, the Manager will continue to monitor the current unprecedented environment and take opportunities which should continue to add value to the portfolio. The recent widening in corporate credit spreads may indeed pose an opportunity, presenting attractive entry points.

From the equity front, the Manager remains very cautious in an environment where the fundamental convictions are overridden by emotions and momentum becomes paramount. Although recent losses in highly cyclical sectors have decompressed previously high multiples, the prospects of a more challenging economic environment ahead might make current valuations still unsustainable. The Manager considers that all these arguments warrant caution at this point in time, particularly in relation to the equity allocation with an emphasis on inflation-resilient business models and strong cash flows. Thus, the Manager remains committed to a conservative allocation and a flexible cash position so that the Fund is prepared for future market volatility and possibly opportunities.