Solid Future Defensive Fund

The Fund aims to deliver a positive total return in any three year period from a flexibly managed portfolio of global assets whilst maintaining a monthly VaR with a 99% confidence interval at or below 5% at all times. The Investment Manager shall invest primarily in a diversified portfolio across a wide spectrum of industries and sectors primarily via bonds, equities and eligible ETFs. Investment in these asset classes either directly or indirectly through UCITS Funds and/ or eligible non UCITS Funds.

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

January 2025

Introduction

January as expected turned to be a month in which financial markets were anxious on the upcoming policies the U.S. administration will impose. Whilst the inauguration took place only on the 20th of the month, President Trump’s declared policies a priori have been looming large over financial markets. After his inauguration, Trump saved no time in starting implementing policies, which were nothing short of bringing a deluge of assumptions on what their implications on global inflation and economic growth will be. As expected, the immigration and trade policies announced which ultimately were not entirely enforced created volatility.  Moreover, the DeepSeek announcement regarding its own open-source LLM created allegedly on a very low budget, has put a shadow on markets orthodoxy that high AI capex spending is the key to further growth in the corporate sector. Finally, geopolitical factors, also brought in discussion by the Trump administration, cast some sort of a long-term uncertainty on all assumptions economists based their forecasts over the course of the past days. While we might have witnessed an outsized breed of Trump politics based on his willingness to hit the ground running, markets have just experienced how 2025 can evolve in terms of volatility. As we had pointed out in our December commentary the coming year could be an eventful year which however will probably also pose numerous investment opportunities.

From the monetary front, the FED maintained a cautious approach keeping interest rates steady, however signalling that it remains vigilant about inflationary pressures and would adjust its policy if necessary, especially if economic growth showed signs of overheating. Markets now suspect that any potential dovish inclination has been put off by the trade protectionist policies. indeed, this has triggered uneasiness in the bond market.  In Europe, the ECB announced a 25bp, as it is grappling with balancing a re-acceleration of the Euro area inflation in recent months with sluggish economic growth in the region.

In equity markets, January was marked by the DeepSeek scare that seriously questioned for the first time the 64,000 points question – is the AI boom that led the impressive rally in the last 2 year over? Let’s not forget, the driving force behind the market participants’ faith in markets since the fall of 2022 has been the expectation that ever-increasing investments in AI infrastructure will eventually pay off, making the AI-infrastructure suppliers as the main gainers. While initial claims regarding the incredibly low budget on which the Chinese AI start-up managed to achieve such an impressive technical feat are up for scrutiny and the process used might end up being legally challenged, a growing concern regarding the current amount of capex spent by US enterprises in the AI geopolitical battle has shocked markets. The issue is up for debate, but a sense of lack of confidence is already creeping up as it becomes obvious that higher budgets for more performing semiconductors processing requires immense amounts of data storage, in ever-larger data centres requiring more energy consumption. New initiatives in the real world such as the Stargate program announced by the Trump administration might disregard the idea taking a longer-term perspective on things, but from a financial analysis perspective, a diminishing rate of return on capital invested is always an investment deal breaker. The impact on equity markets, particularly on the technology sector, could be immense. 

Market Environment and Performance

In January, the economic picture was brightening after stagnation on last quarter of 2024, while the Eurozone private sector activity expanded for the first time since August 2024 driven by a resurgence in the service sector that offset continued weakness in manufacturing. Despite such improvement, growth remain uneven, concentrated outside the Eurozone largest economies, which continues to struggle. Overall demand remains soft. Headline inflation rose for a fourth straight month to 2.5%, the highest level since July, while core inflation remained steady at 2.7%.

The US economy portrayed a continued overall expansion, with GDP posting a 2.3% annualized growth in Q4, falling short of the 2.6% forecast. The Composite PMI dipped in January, indicating the slowest private sector growth in nine months. While manufacturing saw a return to growth, the service sector’s expansion continued at a slower, though sustained pace. Inflation and= its implications of monetary decisions will remain a trigger for market uncertainty with headline inflation and core expected to rise given strong consumer spending.

In January, global equity markets have continued the positive note investors were accustomed to last year, putting another positive month for the records, in spite of the DeepSeek-led shock felt by technology names. This was supported not only by a slight retracement in the recent upswing seen in bond yields, but also by a postponement (for now) in aggressive levying of trading tariffs by the new US administration. The recent geographical performance divergence continued with the US underperforming particularly European markets, as the latter still enjoyed a low valuation effect and its surely playing catch-up following a notable lagging in 2024. The S&P 500 index gained 2.01% particularly in value sectors like heath care, materials and financials, with consumer staples posting the sole negative return during the month. European markets continued an unusual strong run propelled by better than expected macroeconomic numbers and more upbeat expectations as regards the economic growth in China with high single digit returns.

Credit markets rebounded strongly in January after an initial dip caused by rising US Treasury yields following Trump’s return to office (which fuelled expectations of fiscal expansion and persistent inflation).  Weaker-than-expected inflation led to a decline in the US 10-year Treasury yield to 4.55%, while European government bond yields rose, with German Bunds reaching 2.46%. Corporate credit performed positively overall. Investment-grade bonds saw gains, though they lagged behind lower-rated bonds.  US credit, especially high-yield, significantly outperformed, delivering a 1.38% return.

Fund Performance

In the month of January, the Solid Future Defensive Fund registered a 0.61 per cent gain. On the equity allocation, The Fund’s allocation has been rebalanced, as the Manager aligned it to the market sentiment. New conviction name Booking Holdings has been added given expectations of improved return potential over the short to medium term. Consequently, the holding in Eli Lilly & Co has been liquidated based on decreased upside expectations and negative momentum. From a fixed-income perspective, the manager, seeking to increase the portfolio’s income generation while maintaining a healthy credit profile, reduced exposure to CPI Property—a name that saw a strong recovery in 2024 as the interest rate environment shifted.  The proceeds from this reduction were reinvested in the French postal service company, La Poste, a government-owned entity.

Market and Investment Outlook

Going forward, the Manager believes that particularly the first measures taken by the Trump administration as regards trade policies have created material uncertainty on expectations of global economic and inflationary pressures. In this regard credit markets are expected to be in an uneasy situation on the back of uncertainty from monetary politicians. However, given that the fund has an exposure to high yield credit markets this will mitigate any volatility in benchmark yields. Sniffing for opportunities within credit remains part of the strategy in which locking income return will be imperative going forward.

From an equity allocation point of view, the new points of tension revealed on the geopolitical landscape have brought about additional lack of visibility. Volatility has risen sharply on financial markets, particularly in relation to energy and commodity prices and as said in bond yields, adding thus a hawkish spin to monetary policies expectations. Given the above, the more conservative approach embraced at the beginning of the year becomes even more justified. On such backdrop, the Manager remains of the view that despite the uncertainty, pockets of opportunities will emerge. In this regard, the Manager will act more opportunistically by investing in names which are offering attractive entry levels, while at the same time retaining core holdings which should still perform over the long-term.