Malta Government Bond Fund

The Fund aims to maximise the total level of return for investors through investment, primarily, in debt securities and money market instruments issued by the Government of Malta. The Investment Manager may also invest directly or indirectly via eligible ETFs and/or eligible CISs) up to 15% of its assets in “Non-Maltese Assets” in debt securities and/or money market instruments issued or guaranteed by Governments of EU, EEA and OECD Member States other than Malta. The Investment Manager will not be targeting debt securities of any particular duration, coupon or credit rating.

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

August 2022

Introduction
Economic data prints have in August continued to illustrate somewhat of a mixed landscape as the labour market remained strong amid worsening macro conditions. Forward looking indicators, namely Purchasing Manager Index (PMI) readings showed activity losing momentum as demand waned while inflation remained at notable highs.

The recently witnessed upward momentum across financial markets, floundered. Central Banks’ commitment to bring inflation under control despite such inherent risks to the growth outlook, observed in Jerome Powell’s speech at the annual Jackson Hole Economic Symposium, drove markets lower rattling bond markets. Consequent to mounting fears of a worsening growth outlook and such shift in rhetoric, a shift across the US treasury yield curve was noted. Germany’s – Europe’s benchmark yield – followed suit.

Germany’s 10-year yield ended the month at 1.54%, 72bps higher than the previous month-end close. Bond yields of sovereigns within the bloc’s periphery, those which offer a premium over Germany’s debt, moved in tandem, albeit rising at somewhat faster pace.

Market environment and performance
Forward looking indicators, namely PMIs have continued to paint a somewhat gloomy picture as manufacturing and services, noted a sharp deterioration in the rate of growth, pointing to a second successive contraction in activity. In August, manufacturing (reading 49.6) shrank fell at a similar pace to that seen in July, which was the strongest since May 2020. Output fell at a similar pace to that seen in July, which was the strongest since May 2020, while new orders declined sharply once again. Weak demand conditions were a major drag on goods producers in August, reflecting deteriorating purchasing power across Europe amid high inflation. Services, for the first time this year revolved in contractionary territory, as August’s reading came in at 49.8, lower than a preliminary of 50.2. New orders fell the most since February 2021 due to demand weakening and growth in employment waning.

Pressured by elevated energy costs and the continued acceleration in food prices and services, inflationary pressures persisted. In August, annual inflation rate increased to a new record high of 9.1%. On a monthly-on-month basis, the Consumer Price Index (CPI) in the Euro Area increased 0.50% over the previous month, preliminary estimates showed.  Core inflation, which excludes transitory or temporary price volatility, increased to a record high of 4.3% from 4% in the previous month.

Fears of worsening economic conditions in Europe facing notably high inflation and an energy crisis looming, reflected on currency markets, pushing the Euro to slip below parity against the US dollar.

Fund performance
In the month of August, the CC Malta Government Bond Fund registered a loss of 0.99%, outperforming the MSE Malta Government Stocks Total Return Index which fell 1.43% over the same period.

Market and investment outlook
The Manager’s forward-looking view is to continue to play the duration play depending on market conditions. Should inflationary expectations increase, a lower duration will prove determinant for relative outperformance, as witnessed in the fund’s performance on a year-to-date basis.