Malta High Income Fund Distributor

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 will, at all times, maintain a direct exposure to local debt securities (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 Fund.
• The Investment Manager may invest up to 10% of the net assets of the Fund in un-listed Maltese and/or Non-Maltese Assets rated B- or higher or in bonds determined to be of comparable quality by the Investment Manager
• The Fund may also invest in term deposits held with Banks regulated in Malta and other EU, EEA and OECD Member States
• This Fund shall not invest, in the aggregate, more than 10% of the Net Assets of the Fund in units or shares of other UCITS or other CISs

June 2026

Introduction

Malta’s economy expanded by 3.9% year-on-year in the first quarter of 2026, slowing from an upwardly revised 6.5% in the previous quarter. Despite this moderation, growth continued to significantly outperform the Eurozone, where GDP rose by just 0.3% year-on-year. The region’s largest economy, Germany, posted the weakest growth among major economies at 0.3%, down from 0.4% in the prior period. Growth also slowed in France and Italy whereas Spain slightly outperformed.

Meanwhile, Malta’s annual inflation rate slowed to 2.1% in May from 2.5% in the previous month, marking the lowest level since March 2025, mainly driven by continued price declines in clothing and footwear. The increase was driven by supply constraints linked to the Middle East conflict. Prices also fell further for information and communication and insurance and financial services. At the same time, inflation eased for food and non-alcoholic beverages.

Market environment and performance

In the Eurozone, economic activity weakened amid spillover effects from Middle East tensions. Q1 2026 growth slowed, marking the first contraction since Q4 2022. Nevertheless, leading indicators showed tentative signs of improvement, with the S&P Global Eurozone Composite PMI pointing to a stabilization in private sector activity after two months of decline. Manufacturing production growth offset a slower but continued drop in services activity.

Consumer price inflation in the Eurozone eased to 2.8% in June from 3.2% in May, coming in below market expectations and marking the lowest reading since February, before the disruption to energy supplies stemming from the conflict with Iran pushed oil prices sharply higher.

On the policy front, the ECB raised interest rates by 25 basis points at its June 2026 meeting, the first increase since 2023, as policymakers emphasized their commitment to anchoring inflation at the 2% medium-term target. The move follows rising energy costs and persistent inflation risks driven by the Iran conflict and disruptions to oil shipments through the Strait of Hormuz. The meeting minutes indicated that policymakers deliberately refrained from providing forward guidance on the future path of interest rates, citing heightened economic uncertainty. Instead, the Governing Council reiterated its data-dependent, meeting-by-meeting approach, emphasizing that the June hike should neither be interpreted as the start of a tightening cycle nor as a one-off move. While reaffirming its commitment to restoring inflation to target, the ECB also cautioned that sustained elevated energy prices could generate broader inflationary pressures.

Fund performance

In June, the Malta High Income Fund posted a gain of 1.14%.

Throughout the year, the portfolio manager maintained a proactive approach, in line with the fund’s mandate to enhance income generation. This was achieved by further reducing the fund’s exposure to local equities and low-coupon bonds. On the buy side, we continued to capitalize on opportunities as they arose, particularly in the IPO space across both local and international markets. On the local market, the manager opened a position in ACS finance paying an annual coupon of 5.50%.

Market and investment outlook

Benchmark yields were in recent months driven by developments in the Middle East, alongside economic data releases and central bank policy signals. Inflation accelerated notably, reaching highs of 3.2% in May, after subsiding towards at quarter-end, while leading indicators showed tentative signs of improvement, with the S&P Global Eurozone Composite PMI pointing to a stabilisation in private sector activity after two months of decline.

European sovereign bond yields generally declined over the quarter, with the German 10-year Bund ending June at 2.86%, down 8 basis points from the end of May and 14 basis points from the close of the first quarter. Sovereign yields across the euro area periphery, particularly in Italy, Spain, and Portugal, also moved lower, with the compression in yields exceeding that of Germany.

Looking ahead, the outlook has improved following the diplomatic agreement reached between the parties, which has largely held despite intermittent tensions. As a result, energy prices have moderated, although they remain above pre-conflict levels, reflecting occasional disruptions to energy flows through the Strait of Hormuz. The broader economic impact will continue to depend on how the geopolitical situation evolves. A sustained normalisation in energy markets remains especially important for Europe, given its dependence on imported energy. However, should the agreement unravel and tensions escalate again, renewed pressure on energy prices could reignite inflationary pressures, weighing on consumer spending and broader economic activity.

Locally, Malta’s economy is expected to remain resilient through 2026, supported by relatively contained inflation (as energy prices remain subsidised by the government), tax cuts which took effect in January, and a robust tourism sector. These factors should continue to underpin domestic demand and overall economic growth.

With respect to the fund’s composition, we will continue to adjust the portfolio’s allocations as needed, with the goal of enhancing income yield through higher coupon bonds. This will also involve utilizing the allowed 15% allocation for non-Maltese assets.