Global Balanced Income Fund

The Fund seeks to provide stable, long-term capital appreciation by investing in a diversified portfolio of local and international bonds, equities and other income-generating assets. The Investment Manager shall diversify the assets of the Fund among different assets classes. The manager may invest in both Investment Grade and High Yield bonds rated at the time of investment at least “B-” by S&P, or in bonds determined to be of comparable quality, provided that the Fund may invest up 10% in non- rated bonds, whilst maintain an exposure to direct rated bonds of at least 25% of the value of the Fund. Investments in equities may include but are not limited to dividend-paying securities, equities, exchange traded funds as well as through the use of Collective Investment Schemes.

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

• We shall invest primarily in a diversified portfolio of listed transferable securities across a wide spectrum of industries and sectors primarily via bonds, equities and eligible ETFs. We may invest in these asset classes either directly or indirectly through UCITS Funds and/ or eligible non UCITS Funds
• We intend to diversify the assets of the Sub-Fund broadly among countries, industries and sectors, but reserve the right to invest a substantial portion of the Sub-Fund’s assets in one or more countries (or regions) if economic and business conditions warrant such investments
• Investments in equity securities may include, but are not limited to, dividend-paying securities, equities, ETFs and preferred shares of global issuers. At our discretion, we may also invest indirectly in equities and equity-related instruments through the use of collective investment schemes. The Sub-Fund will generally, but not exclusively, invest in blue chip issuers listed on Approved Regulated Markets, including equities listed on the Malta Stock Exchange, where applicable
• We shall manage the credit risk and will aim to manage interest rate risk through credit analysis and credit diversity. We may invest in both investment grade (corporate and sovereign) and high yield bonds that have a credit rating of at least “B-” by S&P (or rating equivalent issued by other reputable rating agencies) at the time of investment, provided that the Sub-Fund may invest a maximum of 10% of its assets in non-rated debt securities, including those listed on the Malta Stock Exchange. We will, at all times, maintain an exposure to direct rated bonds, whether investment grade or high yield, of at least 25% of the value of the Sub-Fund
• For temporary or defensive purposes, the Sub-Fund may invest in short-term fixed income instruments, money market funds, cash and cash equivalents. The Sub-Fund may also hold cash and cash equivalents on an ancillary basis or cash management purposes, pending investment in accordance with its Investment Policy and to meet operating expenses and redemption requests.The Sub-Fund may invest in Real Estate Investment Trusts (“REITs”) via UCITS-eligible ETFs and/or CIS and securities related to real assets (including but not limited to real estate, agriculture, and precious metals-related securities) such as equities, bonds, and ETFs as well as CISs as long as these constitute eligible assets under the UCITS Directive
• The Sub-Fund may invest in options, futures and forwards for risk management and hedging purposes only (“Hedging Instruments”)
• Other than any margins required for these Hedging Instruments, the Sub-Fund will not employ leverage

February 2025

Introduction

The last week of February turned out to develop as a crisis of American unpredictability as the decision-making process and subsequent readjustments from the new Trump administration have conquered in rattling financial markets. While the protectionist agenda so far enforced amounts to a considerably higher estimated impact compared to measures taken during the first Trump mandate, markets have really been taken by surprise by such decisive action, with the big R word (read “recession”) resurfacing again in the US. Against basic economic theory, the current US leadership actions have not been welcomed by markets, leaving in the dust the American exceptionalism theme which dominated just some months ago.

Meanwhile, market participants have rediscovered Europe and China as viable alternatives, which was unthinkable just a year ago. Geopolitical factors stemming from the need to step up its military defence against a potential Russian aggression has revitalized the Eurozone as a relevant economic bloc, active in finding its own footing in the very complicated landscape nowadays. A reassessment of the need to collaborate with the corporate sector in propping up domestic economic growth has been the main act in China as the central leadership signalled a warming up particularly towards the local technology sector. To paraphrase a political adage, it takes years for some major economic themes to play out in financial markets, but sometimes just weeks for market consensus to shift.

From the monetary front, while the FOMC had no meeting scheduled during the month, markets now expect for the FED to wait until next quarter before cutting rates again being faced with the threat of rising inflation. Inflation forecasts have raised on concerns that the new administration’s policies, particularly on tariffs could reignite price pressures in the economy. Recently FED officials themselves, including Chair Powell, have admitted they are not in a hurry to lower rates further.  In Europe, as the ECB did not hold a monetary policy meeting during the month, expectations remained constant as regards a further 25basis-point interest rate cut next month as the disinflation process remains on track.

In equity markets the last week of February has literally flipped the virtual market consensus as regards the continuation of American domination well into 2025. Since Christmas 2024, US markets underperformed their European and Chinese peers, in a total contradiction to what we have witness since the Great Financial Crisis, moves which recaps the beginning of 2023. That time around such development proved to be a fluke, as the then nascent AI tailwind quickly reverted things back to normal. This time however the challenge of US dominance in market performance might prove to be more sustainable. This time, the political change in the US, which seem to lead to unorthodox economic policies, combined with valid game-changing factors ripe to benefit both European and Chinese markets, can make such reality more sustainable. Finally, it looks like the valuation gap between the US and the rest has found a reason to shrink again after many years of failed attempts. The gap does not necessarily need to close, but the low base from which it all starts gives it the potential of quite some time to balance. Even from a theoretical standpoint it would make sense for such a process to take place now as the fundamental advantage of US markets, namely an outsized weighting in technology and growth stocks, does not quite do the trick in a higher interest rate environment, with higher cost of opportunity and requiring higher equity returns. Value sectors are at an advantage on a comparative basis requiring less margin of safety and being more competitive with bond pay-outs through dividend pay-outs. Of course, all this might turn on its head should the Trump doctrine perform a U-turn, which seems unthinkable right now. But also, an alternative to US markets seemed unthinkable just a quarter ago. So, it’s definitely a wait and see process and do not sell the noise strategy.  

Market Environment and Performance

In February, the economic picture was brightening after stagnation. The monthly PMI reading remained steady at 50.2, unchanged from the previous month and indicating a marginal economic growth in the bloc. Spain led the expansion with a strong and accelerated rise in business activity, while Ireland also saw faster growth, and Italy returned to expansion for the first time in four months. Germany experienced only modest growth, and France’s activity continued to decline. Headline inflation eased to 2.4% as price growth slowed for services and energy, while core inflation fell to 2.6%, the lowest level since January 2022.

The US economy exhibited signs of emerging growth concerns, driven by potential tariff impacts and persistent inflationary pressures. The Composite PMI sharply declined to 50.4 from January level of 52.7, signalling near-stagnation in private sector activity. This marked the slowest expansion since September 2023, with a renewed contraction in services output. Business optimism reached a low point reflecting anxieties about federal spending cuts, tariffs, heightened price pressures and geopolitical uncertainties. The headline inflation posted a 2.8% reading in February, although slightly below market expectations. Core inflation also eased to 3.1%, rising by 0.2% month-over-month.

In February, global equity markets have put an end to the optimism it has embraced since the outcome of the US elections late last year, while at the same time asking serious questions about the American exceptionalism that was supposed to dominate financial markets this year. While the overall performance was only marginally negative, its sector-based segregation looked much more typical to a bear market, where consumer staples, energy and utilities heavily outperformed technology and consumer discretionary. Following on the debacle of the AI rally, the Magnificent 7 were the burden that pushed US markets toward a huge underperformance year-to-date compared to European and Chinese markets. The S&P 500 index lost 1.21% as even another set of impressive earnings from Nvidia failed to impress investors. European markets continued their strong run as institutional investors are changing their perennially negative sentiment toward the region even for a while. The EuroStoxx50 gained 3.34% while the DAX gained 3.77%.

Meanwhile, credit witnessed continued positive performance across corporate bond markets, albeit with varying regional dynamics. European high yield bonds exhibited a 1.04% gain, surpassing investment grade performance. In the US, a combination of slight spread widening and shorter duration resulted in US high yield underperforming, posting returns of 0.65%. The weakening US dollar provided tailwinds for emerging market debt, which recorded a 1.34% return.

Fund performance

In February, the CC Global Balanced Income Fund returned 0.07%. On the equity allocation, The Fund’s allocation has been rebalanced, as the Manager aligned it to the market sentiment. Exposures to Blackrock Inc, PayPal Holdings, and Booking Holdings have been increased given attractive entry prices offered by the market. Consequently, holdings in Walt Disney, Moody’s Corp and iShares US Property Yield UCITS ETF were 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, utilised cash proceeds from subscriptions to invest in two newly issued bonds, namely the 4.25% Loxam 2030 and 4.066% Ford Motor Credit 2030.

Market and investment outlook

Going forward, the Manager believes that the conflicting measures taken by the Trump administration within its first weeks as regards trade policies have created material uncertainty on expectations of global economic and inflationary pressures. What initially was believed to be either a straightforward protectionist policy or a negotiating tactic, looks increasingly just an improvised trade policy without purpose with significant odds of generating a US recession. A collateral damage of such behaviour is monetary policy, as interest rates future pathway have by now became anyone’s guess. While European and Chinese political factors have moved towards a more active support for their domestic economies and show no signs of appeasement in relation to the US trade aggressiveness, expectations for the global macroeconomic landscape as drafted after the US election should undergo a revision.

Given the above, the Manager remain conservative as regards market return expectations, combining a diversified allocation with heightened exposure to quality companies and business models benefitting from secular growth trends agnostic to specific macroeconomic developments. The Manager’s strategy remains intact in terms of acting more opportunistically in deploying capital in specific sectors where the overriding sentiment warrants a more attractive upside potential over the shorter timeframe, and using cash levels as dry powder to be used during episodes of market overshooting.