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.

October 2024

Introduction

Malta’s economy demonstrated continued resilience and growth, with business confidence climbing to 102.80 points in October from 86.50 points in September, surpassing the 22-year average of 100.1 points. Retail sales also grew, increasing by 2.5% year-over-year in September from 2.3% in the previous month.

Meanwhile, price pressures on consumers eased, with the annual inflation rate declining to 2.1% in September from 2.4% in August, marking the lowest level since October 2021. This decline was driven by lower costs for housing, utilities, transportation, and recreation.

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 supports these trends, indicating an overall slowdown in the Eurozone, despite GDP growth somewhat surprising to the upside. Data from Eurostat showed eurozone economic growth was 0.4% QoQ in Q3, accelerating from 0.2% in the previous three months. Spain and Portugal registered the fastest growth rates.

October’s Eurozone Composite PMI, albeit revised higher, pointed to a stagnation in private business, as manufacturing (46 v 45 in September) continued to contract although at a slower pace while services (51.6 v 51.4 in September) growth improved. Shrinking levels of business activity in Germany and France offset expansion in Spain, Ireland, and Italy. Meanwhile, there was a further weakening of demand conditions and the sharpest drop in employment since December 2020. Business confidence too weakened, slipping for a fifth successive month to its lowest level in 2024.

Inflation, previously noting a substantial decline due to base effects (particularly on energy), rose to 2.0% in October, compared to 1.7% in September and preliminary estimates of 1.9%. Core inflation and services inflation remained steady at 2.7% and 3.9%, respectively. The labour market remained healthy, with the unemployment rate revolving at notable lows (6.3% in September), and significantly below a 20-year average of 9.3%.

Consequent to the worsening economic trends, the European Central Bank (ECB) eased monetary policy by cutting interest rates by by 25bps in October, but an uptick in inflation and better-than-expected growth figures suggested that the pace of future rate cuts may slow. More recent leading indicators, however, showed a contraction in business activity during October, adding a layer of complexity to the outlook for ECB policy.

Fund performance

In October, the Malta High Income Fund registered a loss of 0.21% for the month, underperforming its internally compared benchmark which saw 0.46% gain, as locally listed equities saw a 1.50% gain, whilst fixed income remained largely unchanged.

Market and investment outlook

The narrative for credit markets remained largely unchanged in October, with investor focus centred on economic data, central bank policy, and the US election.

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, the ECB remains vigilant about inflation, especially after the unexpected October surge.

The anticipation of further interest rate cuts, particularly from the ECB, 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 factor – particularly the upcoming US election – could influence the inflation outlook. Former President Trump’s policies, with his strong position for re-election, are seen as potentially inflationary, which could complicate the Federal Reserve’s policy decisions in the future.