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

November 2024

Introduction

Malta’s economy demonstrated continued resilience and growth, with business confidence climbing to 109.50 points in November from 102.80 points in October, surpassing the 22-year average of 100.1 points. Meanwhile, retail sales also increased, growing by 1.9% year-on-year.

However, price pressures on consumers rose, with the annual inflation rate climbing to 2.4% in October from 2.1% in the previous month. This was the lowest reading in nearly three years. Prices increased at a faster rate for transportation, food and non-alcoholic beverages, and rebounded for clothing and footwear.

Market environment and performance

The economic disparity between the US and the Eurozone remained. While Europe’s economy has consistently shown signs of weakening, particularly as its largest economies continue to face a deterioration in economic metrics, the US has maintained a relatively steady economic trajectory. Recent Purchasing Managers’ Index (PMI) data continued to support these trends, indicating a sustained slowdown in the Eurozone.

November’s Eurozone Composite PMI, albeit revised higher, pointed to a contraction in private business, as manufacturing (45.2 v 46 in October) deteriorated further while services (49.5v 51.6 in October) marked the first decrease in output for the first time since January. Weak demand conditions persisted across the Eurozone, with new private sector orders declining for the sixth consecutive month, marking the sharpest drop so far this year. Sales to non-domestic clients saw a particularly significant reduction. Employment also continued to decline, and business confidence fell to its lowest point in the past 12 months.

Inflation, previously noting a substantial decline due to base effects (particularly on energy), rose for a second successive month to 2.3% in November, compared to 2.0% in October, preliminary estimates showed. Core inflation remained steady at 2.7% while services inflation edged lower to 3.9% from 4.0% in October. The labour market remained healthy, with the unemployment rate revolving at notable lows (6.3% in October), and significantly below a 20-year average of 9.3%.

Fund performance

The CC Malta Government Bond Fund outperformed in November, noting a gain of 0.84% vs a benchmark performance of 0.77%. Throughout the month, the Manager maintained its portfolio allocation after having reduced its cash exposure while increasing the portfolio’s exposure to longer-date Maltese and European sovereigns, in the previous months.

Market and investment outlook

The narrative for credit markets remained largely unchanged in November, with investor focus centered on the political landscape, economic data, and central bank policy.

Central banks have recently adopted a more accommodative stance, tailoring their policies to specific economic needs. Both the European Central Bank (ECB) and the Federal Reserve (Fed) have emphasized data-driven decision-making, with a particular focus on the employment market. However, vigilance surrounding inflation, especially following recent upticks, has been maintained. The Fed, with its dual mandate of price stability and maximum employment, conveyed optimism that inflation is subsiding and the labour market remains robust, supporting the possibility of further interest rate cuts, though at a measured pace. The ECB, grappling with a weakening Euro and declining economic activity, aligns with this trend.

The anticipation of further interest rate cuts continues to fuel optimism in the global bond market. Locking in attractive current coupon levels is considered prudent before continued policy easing. However, risks remain, as political factors and geopolitical tensions may influence the inflation outlook. President-elect Trump’s policies are seen as potentially inflationary, which could complicate the Federal Reserve’s policy decisions in the future.