Investment Objectives

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.

Investor Profile

A typical investor in the High Income Bond Fund in GBP is:

  • Seeking to earn a high level of regular income
  • Seeking an actively managed & diversified investment in high income bonds.

Fund Rules

The Investment Manager of the High Income Bond Fund has the duty to ensure that the underlying holdings 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 of the funds. Some of the restrictions include:

  • 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

Commentary

January 2024

Introduction

Market participants, though wary of possible threats to inflation – notably; sticky services inflation, a resilient labour market, and tensions in the Red Sea – remained confident that central banks had finished hiking, sustaining expectations of pre-emptive interest rate cuts. However, the first monetary policy meeting for 2024 dashed such hopes, providing a clear view that cuts may not come as soon as expected. Prior projections suggesting three cuts over 2024 were maintained by policy makers.

The ECB, in its January meeting, maintained record-high interest rates and pledged to keep them restrictive until inflation reaches its 2% target, despite concerns about a looming recession and easing price pressures. President Lagarde noted that officials unanimously concurred that it was premature to engage in discussions regarding interest rate cuts. The Federal Reserve too kept rates unchanged, indicating they won’t reduce rates until inflation moves sustainably towards a desirable level. Chair Powell stated that it will be appropriate to begin reducing rates sometime this year, emphasizing a meeting-by-meeting approach. A March cut is however unlikely.

In January, the 10-year US Treasury yield rose above 4.10%. German Bunds too saw yields rise above 2.30%, yet retreated back to 2.17% at month-end. In the Eurozone periphery, the risk premium on Italian bonds relative to German securities reached a low of 1.56%. Beyond sovereign bonds, the entire fixed income market saw a partial reversal in the positive performance experienced at the end of 2023, as enthusiasm for near-term rate cuts subsided. Investment grade corporate credit was largely unchanged, yet still outperformed government bonds with new issuance being absorbed well and spreads tightening further on hopes of a soft landing. Within high yield, the eurozone was the notable outperformer (+0.83%), experiencing tighter spreads and positive total returns that exceeded those of its investment-grade counterparts.

Market environment and performance

A mild deceleration in Q3 together with weaker private sector activity, pointed to a possible contraction in December, reinforcing the likelihood of the euro area entering a technical recession in the latter half of the 2023. Unexpectedly, Euro Area economy stalled amid a better-than-expected growth in Spain and Italy while the French economy stalled and Germany contracted 0.3%.

Tentative signs of improvement in the Euro area economy were seen at the start of the year, January’s Purchasing Managers’ Index (PMI) survey showed, amid an improvement in manufacturing (reading 46.6 v a previous month reading of 44.4) and slowdown in services (reading 48.4 v a previous month reading of 48.8). Indeed, the contraction in business activity and new orders softened, while growth expectations strengthened to a nine-month high. Employment, previously contracting, showed signs of stabilization, while export demand fell at its slowest pace since last April. Persistent inflationary pressures remained apparent, particularly for prices charged by firms for goods and services. Both output prices and input costs rose at their sharpest rates for eight months.

Inflationary pressures returned to a downward trajectory following an uptick in inflation in December. Core prices – which exclude volatile food and energy prices – too eased to 3.3%, above forecasts of 3.2% but still reaching its lowest level since March 2022.

In the United States, both lagging and leading economic indicators, continued to portray a relative level of robustness compared to its Western developed counterpart. In January, data showed that US GDP grew at an annualised rate of 3.3% in Q4 2023, and for the year as a whole, by 3.1%, compared to 1.9% in 2022 and Fed’s estimates of 2.6%. In January, industrial activity as measured by the latest PMI indices signalled a modest uptick (reading 52.0 v a previous month reading of 50.9) in business activity, driven by a faster rise in services. The latter fuelled by a rise in new orders amid improved demand conditions in the domestic and foreign market.  Optimism regarding the outlook for output over the next year too improved, with firms continuing to expand their staffing numbers.

Annual rate of inflation in the US fell back to 3.1% in January following a brief increase to 3.4%, but came higher than forecasts of 2.9%. Core inflation which excludes volatile items such as food and energy held steady at 3.9%, compared to expectations it would slow to 3.7%. From the employment front, hiring surged by 317k, the most in a year, exceeding the upwardly revised December figure of 278k and significantly surpassing forecasts of 155k. The unemployment rate remained steady at 3.7%, defying market expectations of 3.8%. Wage growth edged higher, with average hourly earnings rising by 0.6%, outpacing the 0.4% monthly gains observed in November and December. Undoubtedly, January’s job numbers further challenge narratives of a decelerating labour market in the US.

Fund performance

The CC High Income Bond Fund started the year on the right footing, recording a gain of 0.47% from the previous month’s close, as global high yield corporate credit generally headed higher.

The manager, in line with its mandate, maintained an active approach to managing the portfolio. Throughout the month, the manager – aiming to increase the portfolio’s duration in a gradual manner – continued to take advantage of selective opportunities, primarily by participating in initial offerings. Indeed, the month saw a number of market participants coming to market, with liquidity and appetite certainly increasing. Credit issuers which the CC High Income Bond Fund increased its exposure to include; Schaeffler AG, Mundy’s, Banco Santander and United Group.

Market and investment outlook

Hopes for a rapid end to interest rate hikes faded in January as central bankers reiterated their commitment to data-driven policy decisions and emphasized the continued threat of inflation. Despite reaching peak levels and inflation sustaining a downward trend, Fed Chair Jerome Powell stated that rate cuts in March were unlikely. Similarly, while acknowledging progress in “disinflation,” ECB President Christine Lagarde stressed that discussions of easing policy were premature. The key challenge for policy makers going forward is balancing continued high interest rates with supporting economic growth. The euro area, unlike its Western counterparts, faces an additional headwind whereby key economies, traditionally bolstering the single currency bloc, are now dragging down and offsetting the resilient growth observed in Southern European economies.

Fixed income, for years losing its appeal – given the relatively low-yielding environment – has become more attractive. Indeed, locking in coupons at such comparably favorable levels, ahead of any policy easing, is key.

That said, the manager will going forward continue to assess the market landscape and capitalize on appealing credit opportunities. Consistent with recent actions, the manager will continue to tailor the portfolio to match prevailing yield conditions while increasing the portfolio’s overall duration. Optimism for the year ahead remains on the back of continued rate cut expectations.

Key Facts & Performance

Fund Manager

Jordan Portelli

Jordan is CIO at CC Finance Group. He has extensive experience in research and portfolio management with various institutions. Today he is responsible of the group’s investment strategy and manages credit and multi-asset strategies.

PRICE (GBP)

£

ASSET CLASS

Bonds

MIN. INITIAL INVESTMENT

£2000

FUND TYPE

UCITS

BASE CURRENCY

GBP

5 year performance*

0%

*View Performance History below
Inception Date: 14 May 2021
ISIN: MT7000030474
Bloomberg Ticker: CCHIBGG MV
Distribution Yield (%): 3.25
Underlying Yield (%): 5.24
Distribution: 31/03 and 30/09
Total Net Assets: €50.74 mn
Month end NAV in GBP: 91.81
Number of Holdings: 131
Auditors: Deloitte Malta
Legal Advisor: Ganado Advocates
Custodian: Sparkasse Bank Malta p.l.c.

Performance To Date (GBP)

Top 10 Holdings

iShares Fallen Angels HY Corp
3.0%
iShares USD High Yield Corp
2.8%
4% JP Morgan Chase & Co perp
2.3%
7.5% Nidda Healthcare Holding 2026
1.9%
iShares Euro High Yield Corp
1.8%
8.192% Encore Capital Group 2028
1.8%
3.875% Allwyn International 2027
1.7%
2.5% Hapag-Lloyd AG 2028
1.7%
4.625% Volkswagen perp
1.6%
3.5% Eircom Finance DAC 2026
1.5%

Major Sector Breakdown*

Financials
12.0%
Asset 7
Communications
8.1%
Funds
7.8%
Consumer Discretionary
7.1%
Asset 7
Communications
4.4%
Consumer Discretionary
3.9%
*excluding exposures to CIS

Maturity Buckets*

69.0%
0-5 Years
17.2%
5-10 Years
2.1%
10 Years+
*based on the Next Call Date

Credit Ratings*

Average Credit Rating: BB
*excluding exposures to CIS

Risk & Reward Profile

1
2
3
4
5
6
7
Lower Risk

Potentialy Lower Reward

Higher Risk

Potentialy Higher Reward

Top Holdings by Country*

United States
24.0%
Germany
11.4%
France
9.5%
Spain
5.1%
Italy
4.9%
Brazil
4.3%
Netherlands
3.4%
United Kingdom
3.1%
Luxembourg
2.6%
Czech Republic
2.6%
*including exposures to CIS

Asset Allocation

Cash 3.8%
Bonds 88.4%
CIS/ETFs 7.8%

Performance History (EUR)*

1 Year

6.31%

* The Distributor Share Class (Class G) was launched on the 6th July 2021. No dividends have been distributed since launch. The Annualised rate is an indication of the average growth of the Fund over one year. The value of the investment and the income yield derived from the investment, if any, may go down as well as up and past performance is not necessarily indicative of future performance, nor a reliable guide to future performance. Hence returns may not be achieved and you may lose all or part of your investment in the Fund. Currency fluctuations may affect the value of investments and any derived income.
** Performance figures are calculated using the Value Added Monthly Index "VAMI" principle. The VAMI calculates the total return gained by an investor fromreinvestment of any dividends and additional interest gained through compounding.
***Returns quoted net of TER. Entry and exit charges may reduce returns for investors.

Currency Allocation

Euro 65.0%
USD 35.0%
Other 0.0%

Risk Statistics

Sharpe Ratio
-0.75 (3Y)
-0.32 (5Y)
Std. Deviation
4.84% (3Y)
7.57% (5Y)

Interested in this product?

  • Investment Objectives

    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.

  • Investor profile

    A typical investor in the High Income Bond Fund in GBP is:

    • Seeking to earn a high level of regular income
    • Seeking an actively managed & diversified investment in high income bonds.
    Investor Profile Icon
  • Fund Rules

    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
  • Commentary

    January 2024

    Introduction

    Market participants, though wary of possible threats to inflation – notably; sticky services inflation, a resilient labour market, and tensions in the Red Sea – remained confident that central banks had finished hiking, sustaining expectations of pre-emptive interest rate cuts. However, the first monetary policy meeting for 2024 dashed such hopes, providing a clear view that cuts may not come as soon as expected. Prior projections suggesting three cuts over 2024 were maintained by policy makers.

    The ECB, in its January meeting, maintained record-high interest rates and pledged to keep them restrictive until inflation reaches its 2% target, despite concerns about a looming recession and easing price pressures. President Lagarde noted that officials unanimously concurred that it was premature to engage in discussions regarding interest rate cuts. The Federal Reserve too kept rates unchanged, indicating they won’t reduce rates until inflation moves sustainably towards a desirable level. Chair Powell stated that it will be appropriate to begin reducing rates sometime this year, emphasizing a meeting-by-meeting approach. A March cut is however unlikely.

    In January, the 10-year US Treasury yield rose above 4.10%. German Bunds too saw yields rise above 2.30%, yet retreated back to 2.17% at month-end. In the Eurozone periphery, the risk premium on Italian bonds relative to German securities reached a low of 1.56%. Beyond sovereign bonds, the entire fixed income market saw a partial reversal in the positive performance experienced at the end of 2023, as enthusiasm for near-term rate cuts subsided. Investment grade corporate credit was largely unchanged, yet still outperformed government bonds with new issuance being absorbed well and spreads tightening further on hopes of a soft landing. Within high yield, the eurozone was the notable outperformer (+0.83%), experiencing tighter spreads and positive total returns that exceeded those of its investment-grade counterparts.

    Market environment and performance

    A mild deceleration in Q3 together with weaker private sector activity, pointed to a possible contraction in December, reinforcing the likelihood of the euro area entering a technical recession in the latter half of the 2023. Unexpectedly, Euro Area economy stalled amid a better-than-expected growth in Spain and Italy while the French economy stalled and Germany contracted 0.3%.

    Tentative signs of improvement in the Euro area economy were seen at the start of the year, January’s Purchasing Managers’ Index (PMI) survey showed, amid an improvement in manufacturing (reading 46.6 v a previous month reading of 44.4) and slowdown in services (reading 48.4 v a previous month reading of 48.8). Indeed, the contraction in business activity and new orders softened, while growth expectations strengthened to a nine-month high. Employment, previously contracting, showed signs of stabilization, while export demand fell at its slowest pace since last April. Persistent inflationary pressures remained apparent, particularly for prices charged by firms for goods and services. Both output prices and input costs rose at their sharpest rates for eight months.

    Inflationary pressures returned to a downward trajectory following an uptick in inflation in December. Core prices – which exclude volatile food and energy prices – too eased to 3.3%, above forecasts of 3.2% but still reaching its lowest level since March 2022.

    In the United States, both lagging and leading economic indicators, continued to portray a relative level of robustness compared to its Western developed counterpart. In January, data showed that US GDP grew at an annualised rate of 3.3% in Q4 2023, and for the year as a whole, by 3.1%, compared to 1.9% in 2022 and Fed’s estimates of 2.6%. In January, industrial activity as measured by the latest PMI indices signalled a modest uptick (reading 52.0 v a previous month reading of 50.9) in business activity, driven by a faster rise in services. The latter fuelled by a rise in new orders amid improved demand conditions in the domestic and foreign market.  Optimism regarding the outlook for output over the next year too improved, with firms continuing to expand their staffing numbers.

    Annual rate of inflation in the US fell back to 3.1% in January following a brief increase to 3.4%, but came higher than forecasts of 2.9%. Core inflation which excludes volatile items such as food and energy held steady at 3.9%, compared to expectations it would slow to 3.7%. From the employment front, hiring surged by 317k, the most in a year, exceeding the upwardly revised December figure of 278k and significantly surpassing forecasts of 155k. The unemployment rate remained steady at 3.7%, defying market expectations of 3.8%. Wage growth edged higher, with average hourly earnings rising by 0.6%, outpacing the 0.4% monthly gains observed in November and December. Undoubtedly, January’s job numbers further challenge narratives of a decelerating labour market in the US.

    Fund performance

    The CC High Income Bond Fund started the year on the right footing, recording a gain of 0.47% from the previous month’s close, as global high yield corporate credit generally headed higher.

    The manager, in line with its mandate, maintained an active approach to managing the portfolio. Throughout the month, the manager – aiming to increase the portfolio’s duration in a gradual manner – continued to take advantage of selective opportunities, primarily by participating in initial offerings. Indeed, the month saw a number of market participants coming to market, with liquidity and appetite certainly increasing. Credit issuers which the CC High Income Bond Fund increased its exposure to include; Schaeffler AG, Mundy’s, Banco Santander and United Group.

    Market and investment outlook

    Hopes for a rapid end to interest rate hikes faded in January as central bankers reiterated their commitment to data-driven policy decisions and emphasized the continued threat of inflation. Despite reaching peak levels and inflation sustaining a downward trend, Fed Chair Jerome Powell stated that rate cuts in March were unlikely. Similarly, while acknowledging progress in “disinflation,” ECB President Christine Lagarde stressed that discussions of easing policy were premature. The key challenge for policy makers going forward is balancing continued high interest rates with supporting economic growth. The euro area, unlike its Western counterparts, faces an additional headwind whereby key economies, traditionally bolstering the single currency bloc, are now dragging down and offsetting the resilient growth observed in Southern European economies.

    Fixed income, for years losing its appeal – given the relatively low-yielding environment – has become more attractive. Indeed, locking in coupons at such comparably favorable levels, ahead of any policy easing, is key.

    That said, the manager will going forward continue to assess the market landscape and capitalize on appealing credit opportunities. Consistent with recent actions, the manager will continue to tailor the portfolio to match prevailing yield conditions while increasing the portfolio’s overall duration. Optimism for the year ahead remains on the back of continued rate cut expectations.

  • Key facts & performance

    Fund Manager

    Jordan Portelli

    Jordan is CIO at CC Finance Group. He has extensive experience in research and portfolio management with various institutions. Today he is responsible of the group’s investment strategy and manages credit and multi-asset strategies.

    PRICE (GBP)

    £

    ASSET CLASS

    Bonds

    MIN. INITIAL INVESTMENT

    £2000

    FUND TYPE

    UCITS

    BASE CURRENCY

    GBP

    5 year performance*

    0%

    *View Performance History below
    Inception Date: 14 May 2021
    ISIN: MT7000030474
    Bloomberg Ticker: CCHIBGG MV
    Distribution Yield (%): 3.25
    Underlying Yield (%): 5.24
    Distribution: 31/03 and 30/09
    Total Net Assets: €50.74 mn
    Month end NAV in GBP: 91.81
    Number of Holdings: 131
    Auditors: Deloitte Malta
    Legal Advisor: Ganado Advocates
    Custodian: Sparkasse Bank Malta p.l.c.

    Performance To Date (GBP)

    Risk & Reward Profile

    1
    2
    3
    4
    5
    6
    7
    Lower Risk

    Potentialy Lower Reward

    Higher Risk

    Potentialy Higher Reward

    Top 10 Holdings

    iShares Fallen Angels HY Corp
    3.0%
    iShares USD High Yield Corp
    2.8%
    4% JP Morgan Chase & Co perp
    2.3%
    7.5% Nidda Healthcare Holding 2026
    1.9%
    iShares Euro High Yield Corp
    1.8%
    8.192% Encore Capital Group 2028
    1.8%
    3.875% Allwyn International 2027
    1.7%
    2.5% Hapag-Lloyd AG 2028
    1.7%
    4.625% Volkswagen perp
    1.6%
    3.5% Eircom Finance DAC 2026
    1.5%

    Top Holdings by Country*

    United States
    24.0%
    Germany
    11.4%
    France
    9.5%
    Spain
    5.1%
    Italy
    4.9%
    Brazil
    4.3%
    Netherlands
    3.4%
    United Kingdom
    3.1%
    Luxembourg
    2.6%
    Czech Republic
    2.6%
    *including exposures to CIS

    Major Sector Breakdown*

    Financials
    12.0%
    Asset 7
    Communications
    8.1%
    Funds
    7.8%
    Consumer Discretionary
    7.1%
    Asset 7
    Communications
    4.4%
    Consumer Discretionary
    3.9%
    *excluding exposures to CIS

    Asset Allocation

    Cash 3.8%
    Bonds 88.4%
    CIS/ETFs 7.8%

    Maturity Buckets*

    69.0%
    0-5 Years
    17.2%
    5-10 Years
    2.1%
    10 Years+
    *based on the Next Call Date

    Performance History (EUR)*

    1 Year

    6.31%

    * The Distributor Share Class (Class G) was launched on the 6th July 2021. No dividends have been distributed since launch. The Annualised rate is an indication of the average growth of the Fund over one year. The value of the investment and the income yield derived from the investment, if any, may go down as well as up and past performance is not necessarily indicative of future performance, nor a reliable guide to future performance. Hence returns may not be achieved and you may lose all or part of your investment in the Fund. Currency fluctuations may affect the value of investments and any derived income.
    ** Performance figures are calculated using the Value Added Monthly Index "VAMI" principle. The VAMI calculates the total return gained by an investor fromreinvestment of any dividends and additional interest gained through compounding.
    ***Returns quoted net of TER. Entry and exit charges may reduce returns for investors.

    Credit Ratings*

    Average Credit Rating: BB
    *excluding exposures to CIS

    Currency Allocation

    Euro 65.0%
    USD 35.0%
    Other 0.0%

    Risk Statistics

    Sharpe Ratio
    -0.75 (3Y)
    -0.32 (5Y)
    Std. Deviation
    4.84% (3Y)
    7.57% (5Y)
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