High Income Bond Fund Distributor - USD

The Fund aims to maximise the total level of return for investors by investing, mainly in a diversified portfolio of bonds and other similar debt securities. In pursuing this objective, the Investment Manager shall invest primarily in a diversified portfolio of corporate & government bonds maturing in the medium term, with an average credit quality of BB- by S&P, although individual bond holdings may have higher or lower ratings. The Fund can also invest up to 10% of its assets in Non-Rated bond issues.

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

• 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 fund

June 2026

Introduction

Bond markets delivered positive returns in Q2 2026 despite a persistently challenging macroeconomic and geopolitical environment. While risk assets advanced meaningfully as investor sentiment improved following a period of heightened caution, sovereign bond markets remained primarily driven by the evolving inflation outlook and its implications for monetary policy and economic growth.

Geopolitical tensions in the Middle East continued to shape market dynamics during the quarter. Disruptions to shipping through the Strait of Hormuz – a critical global energy transit route – contributed to a sharp rise in oil prices. At the same time, the absence of a definitive diplomatic resolution to the conflict prolonged uncertainty and heightened concerns over energy supplies. This, in turn, prompted investors to reassess monetary policy expectations, pushing bond yields higher amid renewed inflation concerns.

Against this backdrop, U.S. Treasury yields moved higher over the quarter as investors increasingly priced in a prolonged “higher-for-longer” policy stance from the Federal Reserve. In contrast, European sovereign bond yields generally declined as investors closely monitored inflation data from the euro area’s largest economies for indications of the European Central Bank’s future policy path. Germany’s annual inflation rate, after peaking at 2.9% in April, moderated in both May and June as energy prices eased. Inflation in France and Italy also softened, with both countries recording lower readings in June. Meanwhile, inflation in Spain remained broadly unchanged, supported by persistent upward pressure from electricity and gas prices. Overall, inflation across the euro area remained above the ECB’s 2% target, highlighting the uneven nature of price pressures across the region.

Corporate credit markets generated positive returns during the quarter. Both U.S. and European investment-grade corporate bonds outperformed their respective government bond markets, supported by resilient credit fundamentals and continued investor demand. High yield credit delivered even stronger performance, returning approximately 2.5% in the U.S. and 3.4% in Europe, benefiting from the improved risk sentiment and tighter credit spreads.

Market environment and performance

Geopolitical tensions in the Middle East continued to dominate market and economic developments during the first half of the year. Disruptions to shipping through the Strait of Hormuz – a critical global energy transit route – triggered a sharp increase in oil prices and clouded the global economic outlook. Inflation, which had previously remained within a relatively stable range and allowed policymakers to maintain a wait-and-see approach, accelerated as higher energy prices filtered through the economy. At the same time, economic activity softened. Although diplomatic efforts to resolve the conflict faced intermittent setbacks, progress towards de-escalation helped reduce economic uncertainty, easing pressure on energy markets and leading to a marked decline in oil prices.

The U.S. economy continued to demonstrate resilience, with upward revisions to growth and improving leading indicators reinforcing the strength of the underlying economic backdrop. GDP growth was revised up to 2.1% in the second estimate, a notable improvement from the 0.5% recorded in the fourth quarter of 2025. The contribution from net trade proved less of a drag than initially estimated, as import growth was revised lower. Meanwhile, the S&P Global US Composite PMI rose to 52.2 in June 2026 from 51.5 in the previous month, signalling the strongest expansion in private sector activity since January. The improvement was driven by the fastest increase in manufacturing output in six years, alongside a continued acceleration in services activity.

Headline U.S. inflation accelerated to 4.2% in May 2026, its highest level since April 2023, largely reflecting the surge in energy prices. Despite some moderation in hiring, the labour market remained resilient. Non-farm payroll growth slowed to its weakest pace in four months following three consecutive months of stronger-than-expected job gains, while the unemployment rate edged lower to 4.2% from 4.3%.

On the monetary policy front, the Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% for a fourth consecutive meeting in June 2026, in line with market expectations. The meeting also marked the first policy decision under the leadership of the new Fed Chair, Kevin Warsh.

In the Eurozone, economic activity weakened amid spillover effects from Middle East tensions. Q1 2026 growth slowed, marking the first contraction since Q4 2022. Nevertheless, leading indicators showed tentative signs of improvement, with the S&P Global Eurozone Composite PMI pointing to a stabilisation in private sector activity after two months of decline. Manufacturing production growth offset a slower but continued drop in services activity.

Consumer price inflation in the Eurozone eased to 2.8% in June from 3.2% in May, coming in below market expectations and marking the lowest reading since February, before the disruption to energy supplies stemming from the conflict with Iran pushed oil prices sharply higher.

Fund performance

The CC High Income Bond Fund posted a gain of 0.38% in June. The portfolio manager maintained an active strategy, continuing to gradually enhance the fund’s income profile by selectively capturing emerging opportunities while maintaining a close focus on duration.

During the month, the manager continued to add to or rotate into issuers that we believe offer attractive value while remaining comfortable from a credit perspective. Positions were increased in Golden Goose, Webuild and Vedanta Resources.

Meanwhile, we switched our holding in a lower-yielding Goodyear bond into a higher-coupon issue, increasing the coupon from 5.25% to 8.875%, while reducing the Fund’s overall exposure to the issuer. This repositioning reflects our cautious view on the company, as rising energy costs are expected to place further pressure on margins unless these higher input costs can be successfully passed on to customers.

Market and investment outlook

While the conflict continues to raise serious humanitarian concerns for those affected, it has also had meaningful implications for financial markets. Escalating tensions in the Middle East triggered a sharp increase in oil prices during the quarter, placing upward pressure on global bond yields as investors reassessed the inflation outlook. The extent of the broader economic impact, particularly on inflation and monetary policy, will continue to depend on the duration, intensity, and geographic scope of the conflict.

Although shipping through the Strait of Hormuz was not brought to a complete halt, intermittent disruptions to one of the world’s most important energy transit routes were sufficient to constrain oil flows and sustain elevated energy prices. This added complexity to the inflation outlook, reinforcing uncertainty around the timing and pace of future interest rate decisions.

Subsequent diplomatic efforts helped ease immediate concerns, allowing oil prices to retrace much of their earlier gains. This moderation in energy prices was reflected in the inflation data released towards the end of the quarter. Nevertheless, the geopolitical backdrop remains fragile, and the risk of renewed hostilities could once again disrupt energy markets, reignite inflationary pressures, and alter the expected path of monetary policy.

Against this backdrop, a cautious yet proactive investment approach is warranted. While heightened uncertainty may limit the pace of new bond issuance, it could also create pockets of opportunity. At the time of writing, we maintain our view that fixed income returns are likely to be increasingly driven by income rather than capital appreciation, underscoring the importance of securing attractive coupons from issuers with strong credit fundamentals.