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 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.

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 August, the Malta High Income Fund registered a gain of 0.19% for the month, outperforming its internally compared benchmark which saw a marginal loss of 0.16%.

Throughout the month the Manager continued to take an active approach, also seeking pockets of value by looking into attractive credit and equity stories. The fund’s objective, to continue tweaking the fund’s allocation towards the bond market – in line with the newly adopted strategy of a stable level of income and capital preservation – remains unchanged.

Market and investment outlook
Moving forward, the Managers believe in adopting a more defensive stance given the current economic climate. Price pressures may well leave a negative impact on the Maltese economy, possibly hindering the forecasted pace of recovery. Such pace remains highly dependant on inbounds of tourism, which have thus far proved optimistic following an increase in appetite for travel.