Malta High Income Fund Accumulator

The Fund aims to maximise the total level of return through investment, primarily in debt securities and money market instruments issued by the Government of Malta, and equities and corporate bonds issued and listed on the MSE.

The Investment Manager may also invest directly or indirectly up to 15% of its assets in “Non- Maltese Assets”. The Investment Manager will maintain an exposure to local debt securities of at least 55% of the value of the Net Assets of the Fund.

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

• The Investment Manager may invest up to 10% of the net assets of the Sub-Fund in un-listed Maltese and/or Non-Maltese Assets. As far as the “Non-Maltese Assets” segment of the Sub-Fund is concerned, the Investment Manager will not be targeting any international debt securities of any particular duration or coupon. However, the Sub-Fund is generally not expected to hold investments that, at the time of investment, are rated below “B3” by Moody’s or below “B-“ by S&P or in bonds determined to be of comparable quality by the Investment Manager.
• The Investment Manager will not be targeting any local debt securities (debt securities and money market instruments issued or guaranteed by the Government of Malta and/or local corporate bonds issued and listed on the Malta Stock Exchange) of any particular duration or coupon.
• The Investment Manager will, at all times, maintain a direct exposure to local debt securities (debt securities and money market instruments issued or guaranteed by the Government of Malta and/or issued and listed on the Malta Stock Exchange) of at least 55% of the value of the Net Assets of the Sub-Fund.
• The Sub-Fund may also invest in term deposits held with credit institutions regulated in Malta and other EU, EEA and OECD Member States.
• This Sub-Fund shall not invest, in the aggregate, more than 10% of the Net Assets of the Sub-Fund in units or shares of other UCITS or other CISs.

April 2023

Introduction

Market sentiment, as fresh economic data proved resilient, have in April outweighed lingering concerns swarming investors, pondering the severity of a pending recession, banking sector turbulence – worsened by negative sector-specific sentiment surrounding US regional banks – and expectations of further monetary tightening. The latter primarily subject to inflation and job figures.

While a critical point in the battle against inflation has seemingly been reached, as price pressures continue to ease, the trajectory is thus far still not moving quickly enough for both the ECB and Federal Reserve to declare victory. Indeed, the next couple of months will determine whether efforts came to fruition and whether or not monetary politicians navigated a so-called soft landing without tipping the respective economies into a recession.

In April, government bond yields of European sovereigns marginally rose (meaning prices fell).

Market environment and performance

Forward looking indicators, namely PMIs, expanded at the fastest pace of growth in 11 months, driven solely by service sector growth which continued to offset the downturn in manufacturing. Manufacturing (reading 45.8 v a previous month reading of 47.3) continued to point to a worse performance, remaining in contractionary territory. Meanwhile, services (reading 56.2 v a preliminary estimate of 56.6 and previous month reading of 55.0) advanced with Italy and Spain being the main drivers, aided by the tourism industry and travel boom. Overall, new order intakes rose at a similarly-strong rate to that of output. Backlogs of work too rose, as companies stepped up their efforts to boost capacity, with employment levels rising at the sharpest pace since May 2022.

Inflationary pressures, previously showing signs of easing, have over the month somewhat disappointed, supporting the ECBs forceful moves to bring inflation back to target. Particularly, as core prices remained remarkably elevated, higher than levels policy makers would have desired. Notably, core inflation has in March rose to 5.7% from 5.6% in the previous month reading.

In the month, Germany’s benchmark 10-year yield remained largely unchanged increasing to 2.31% from 2.29% in the previous month. Yields of sovereigns within the Euro area’s periphery too edged higher, with Italy’s and Spain’s closing the quarter at 4.17% and 3.36%, 8bps and 6bps higher, respectively.

Fund performance

In April, the Malta High Income Fund registered a gain of 0.58% for the month, underperforming its internally compared benchmark which registered a positive performance of 1.72%. This, following the upward moves witnessed within the equity space which notably outperformed fixed income names.

Market and investment outlook

Moving forward, the Managers believe in maintaining a somewhat cautious stance given the current economic climate, albeit showing signs of improvement. Sustained price pressures, which may have well filtered through services, may continue to leave a negative impact on the Maltese economy, possibly hindering consumption and the forecasted pace of recovery. Such pace remains highly dependent on inbounds of tourism. A record number of visitors in Q1 2023 convey encouraging signs for the upcoming peak season. This, as the appetite for travel, remains.