Global Opportunities Fund Institutional

The investment objective of the Fund is to endeavour to maximise the total level of return for investors through investment, primarily, in a diversified portfolio of equity securities. In seeking to achieve the Fund’s investment objective, the Investment Manager will invest at least 80% of its assets in equity securities.

Investments in equity securities may include, but are not limited to, dividend-paying securities, equities, Collective Investment Schemes (CISs) including exchange traded funds and preferred shares of global issuers.

The Fund will invest a substantial proportion of its assets in other UCITSs, including ETFs, and other eligible CISs.

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

The Fund is classified under Article 6 of the SFDR meaning that the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.

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 securities listed by the same body
• 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 funds
• The fund may not carry out uncovered sales (naked short-selling) of securities or other financial instruments

October 2023

Introduction

October proved to be a roller coaster for financial markets, marked by a continuation of negative sentiment from the previous month. The rise in fixed income yields, driven by the “higher for longer” stance confirmed by central bankers, and concerns about the newly ignited conflict in the Middle East contributed to the initial negative tone. However, as geopolitical tensions remained under control and energy prices started falling by the end of the month, sentiments began to reverse.

Economic indicators played a role in shaping market perceptions. While concerns of an economic recession in the Euro area intensified with a minimal negative GDP reading below market forecasts, the U.S. presented robust job data and strong retail sales, surpassing market expectations. China, despite delivering rather neutral economic numbers, managed to exceed expectations for this year’s economic growth, providing a more positive outlook than feared in previous quarters.

On the monetary front, the Federal Reserve (FED) maintained its benchmark interest rates, reflecting confidence in sustained economic growth, a robust labour market, and inflation levels above targets. FED Chair Powell’s comments, pointing out that the FOMC is not considering or even discussing rate reductions to-date has all but sealed expectations regarding FED’s actions for the next quarter, at least. The European Central Bank (ECB) also opted to keep interest rates at multi-year highs, signalling a cautious “wait-and-see” stance influenced by easing price pressures and concerns about a potential recession.

Equity markets experienced declines during the month, influenced by the rerating of key sectors, such as technology and consumer discretionary, based on corporate earnings and evolving expectations about the interest rate trajectory. What was interesting to observe this earnings season was the markets reaction to particular earnings releases. Indeed, the trend is pointing towards investors becoming increasingly nervous about companies’ ability to match market expectations. Despite the increased volatility, there was a positive aspect to this earnings season. For the first time in a year, the aggregate numbers for the U.S. market showed growth compared to the corresponding period in 2022. This development is encouraging because, ultimately, what propels markets is earnings, not solely the movements in interest rates. It underscores the importance of focusing on the fundamental health and performance of companies in shaping market dynamics.

Investors are advised to focus on long-term earnings trends rather than short and medium-term interest rates, as experienced market participants argue that earnings ultimately drive markets.

Market Environment and Performance

In October the Purchasing Managers’ Index (PMI) indicators continued to show signs of weakness amid a third successive contraction in services (reading of 47.8 versus the previous month reading of 48.7) and a continuing downturn in the manufacturing sector (reading of 43.1 versus a previous month reading of 43.4). Despite a notable increase in oil prices, the annual inflation rate in the Euro area declined to 4.3% reaching its lowest level since October 2021. Overall, fragile demand conditions were a notable aspect, with new business intakes declining at the fastest rate since the coronavirus pandemic. Annual inflation rate in the Euro area declined to 2.9%, reaching the lowest level since July 2021 according to preliminary estimates. Core inflation also eased, dropping to 4.2% from 4.5% in the previous month.

In the U.S., a blowout GDP print of 4.9% annualized for Q3 2023 affirmed the belief of a resilient economy. Industrial activity also expanded as the composite PMI reading hit 50.7, up from 50.2 in the previous month, due to both manufacturing and service providers experiencing a quicker rise in output. Annual inflation rate in the US moved lower to 3.2% in October, while core consumer prices eased further to 4% from the previous 4.1%.

Equity markets did record a rather unexpected loss in the period as expectation were pointing more towards to a minimum recovery from the value destruction recording during the last two months. However, the continuing overshooting in fixed-income yields and renewed geopolitical risks in the Middle East have converged to the worst calendar month performance for equities in 2023. The overall performance could have been even worse had it not been for a technology stocks rally in the last trading days of the month. All in all, markets look now at least a bit less frothy than they were in the summer and clearly the equity risk premium have increased to a level more aligned to historical averages. The S&P 500 index lost 2.17% supported by value sectors like utilities and financials. In Europe, the EuroStoxx50 and the DAX lost 2.72% and 3.75% respectively, being conditioned by a negative macroeconomic backdrop.

Fund Performance

In the month of October, the Global Opportunities Fund registered a 3.95% loss. On a year-to-date basis, the fund’s performance closed with a 0.43% gain, underperforming its hedged comparable benchmark. The fund’s allocation has been readjusted during the month as the manager reviewed some holdings and sectorial exposures. Consequently, new conviction names; ConocoPhillips, Caterpillar, Samsung Electronics, and McDonald’s Corporation have been added based on current stock prices being in line with intrinsic company valuations, as well as momentum trading, particularly in the semiconductors space. This last argument has also been the reason for raising exposures to Applied Materials and Broadcom. Additionally, holdings in Alphabet and Amazon have been slightly raised following encouraging earnings reports. On the other hand, holdings in LVMH, Kering, Deutsche Telekom, Pfizer, Verizon, and Booking Holdings have been liquidated as the manager does not see material upside potential in the current environment, while in the latter case, he decided to take some healthy profits off the table. Finally, holdings in iShares MSCI EM Asia UCITS ETF, Xtrackers MSCI World Energy ETF, and iShares S&P 500 Financial Sector ETF have been decreased to manage cash levels.

Market and Investment Outlook

Moving forward, the Manager holds the perspective that recent concerns about a resurgence of inflationary pressures, driven by geopolitical tensions impacting commodity prices globally, are unlikely to materialize significantly. Therefore, the base case scenario involves an end to the monetary tightening cycle. With continuous softening leading indicators, the global economy is anticipated to decelerate further as increased financing costs affect consumer disposable spending.

The Manager expects the status quo to persist in the coming quarters, with only signs of an economic recession triggering monetary policy easing in developed markets. Given this outlook, the Manager maintains a constructive view on equity markets towards the end of the year. Recent pullbacks are seen as providing entry point opportunities within the current market sentiment framework. As usual, the Manager favours strong business models with cash flow generation, and mega caps and other large corporations with robust competitive positions are expected to be better insulated from any headwinds impacting market sentiment. Historically, year ends have provided a favourable environment for equities, and market participants are hopeful that this time is no different.