Income Strategy Fund

The CC Income Strategy Fund (Distribution) aims to achieve a combination of income, with the possibility of capital growth by investing in a diversified portfolio of collective investment schemes.

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

November 2021

Strategy funds forming the basis for portfolio construction

The underlying principle for the creation of strategy funds is that they form the basis of portfolio construction. The aim is for investors to determine the optimal risk profile through a process which is ideally determined in unison with a financial advisor. Once the risk profile is determined, then a strategy is chosen in order to provide the basis for a resilient portfolio. The scope for these strategies is to provide a core market risk exposure which is aligned with the customer’s risk profile which can be combined with other investments that cater for the specific circumstances of the investor. There are two ways to construct a portfolio involving these strategies, the investor can either select a strategy and stick with it as a standalone investment or select a strategy that can be combined with other investments. All three strategies provide a high degree of diversification through an underlying investment in top tier fund houses which makes them a solid proposition for prospective investors seeking long-term sustainable returns.

European equities underperformed significantly for the month as emerging variants worry markets. 

Regional equity performance was uneven between the US and Europe, wherein the US outstripped Europe by a significant margin. This was a particular month in which correlations did not hold between equity returns. Normally the trend for 2021 was that a negative performance in one region was followed by another negative performance in the other of a similar magnitude. However, this was the exception during the month of November, as the S&P 500 fell by only 0.70%, whilst the Euro Stoxx 50 fell by 4.30%. On a year to date basis, November played into US equities with a relative underperformance by European equities in excess of 4%. European performance was characterised by an underperformance in Cyclicals for the month with Autos and Parts, Basic Resources, Financial Services, Construction and materials and Insurance being the worst performing industries. On the other hand, industries, such as Telecommunication, Utilities, and Real Estate cushioned the negative returns.

In the European high yield space, November continued on the same trend as that observed since mid-September, whereby yields continued to trend upwards. Indeed, during November yields in European high yield eclipsed the three percent mark for the first time this year. Similarly, credit spreads in Europe continued to rise following the immediate uncertainty for economies due to the ongoing winter season which may provide higher hospitalisation incidence and the emergence of new Covid variants. A comparative look into credit spreads in Europe and the US show a similar credit spread number of c. 380 basis points, however, the level of interest rate differs due to differing economic expectations. In fact, a new variant named ‘Omicron’ spooked markets with downside volatility hitting all-time highs for 2021 at the end of the month. This variant risk coincided with a hawkish sentiment on expected monetary intervention by the Federal Reserve. These two factors dampened market confidence which further fuelled a sell-off in equity markets with a mild impact on European High Yield.

The variant risk became the overriding event that plummeted confidence which led to a risk-off trade which resulted in investment grade debt on the long-end of the yield curve to perform strongly for the month under review. Interestingly, within the high yield debt market, lower graded debt (that is, CCC rating) outperformed higher graded debt (that is, BB rating) for the month. In line with risky assets, emerging high yield debt was on the back foot for the month, as the strong dollar and under-vaccination in the EM region all played into a disappointing performance, even on a year-to-date basis. Currently, the emerging high yield market is at a yearly high with a yield of circa 7.80%.