Date:

Marketing Communication

Executive Summary

Key events in market

The Federal Reserve started its easing cycle with a bigger cut than many were expecting. China stimulus surprised on the upside supporting Asian markets and commodities. Fixed Income returns were strong as spreads tightened and rates rallied. Emerging market sovereigns returned 1.79%, with corporates nearby at 1.23% vs. developed markets which returned 1.65%.

Key performance & positioning updates

The Fund showed a strong return on an absolute basis, however showing a small underperformance against its benchmark (ICE BofAML Eurodollar Index) but outperforming JPM EMBI Investment Grade Global Index. During the month, all sources of return contributed to performance.

Market Update

After another brief correction at the start of the month, global stock markets hit new all-time highs at the end of September. The MSCI All Countries Index rose 2.4% for the month, bringing its year-to-date gain to 19.1%. Government bond yields remained at their lowest levels in 15 months on the prospect of looser monetary policy.

Commodity prices, except for oil, rose on a mix of elevated geopolitical tensions – gold – and the announcement of measures to support the economy in China – industrial metals. Finally, the currency market saw the yen, sterling and yuan renminbi lead the recovery of major exchange rates against the US dollar.

In September, several important economic policy steps were taken. First, the Federal Reserve began easing interest rates with a 0.50% cut, higher than market expectations, signalling a shift in focus from fighting inflation to supporting the labour market and economic growth. In addition, Chinese authorities announced a broad package of fiscal and monetary measures aimed at supporting the real estate market and domestic demand.

Another factor that supported markets is the decline in oil prices. Despite the worsening crises in the Middle East and Ukraine, crude oil supply remains more than sufficient to meet demand, which remains moderate, also by virtue of the growing availability of energy from renewable sources. The prospect of lower inflation, in the absence of new shocks, fuels the hope of a prolonged period of interest rate cuts and moderate bond yields.

Fund Performance & Positioning

The Fund showed a strong return on an absolute basis, however showing a small underperformance against its benchmark (ICE BofAML Eurodollar Index) but outperforming JPM EMBI Investment Grade Global Index. During the month, all sources of return contributed to performance. The rally in US Treasuries that started at the end of April continued during September, fuelled by the very much expected rate cut by the Fed. The team had a conviction of a 50bp rate cut despite most of market forecasting a 25bp cut. Lower inflation data and softer labour market made the Fed take a more drastic stand. With inflation cooling and activity relatively muted, other western central banks also deemed it appropriate to cut rates. The European Central Bank delivered its second rate cut in September taking interest rates to 3.5%. During the month, falling government yields were accompanied by tighter credit spreads, as underlying growth outlook remains healthy, despite recent weaker manufacturing data, and low default rates. The Fund’s overweight duration positioning created outperformance in September, outweighing the steepening in the yield curve. The shift in the rate cycle has helped government bonds to perform strongly. Credit has also done well due to still healthy economic activity and overall good credit balance sheets. During the month, higher beta issuers outperformed, with Pemex leading the table. The Fund has maintained its exposure to the company given attractive valuations and the high expectations of government support, which continues to be strong after elections of new President. Subordinated debt in developed market financials also continues to perform well, however during the month the Fund has been taking profits and trimming down some positions. On the negative side, high quality long dated emerging market bonds like PIF 2053, Chile 2042, Qatar Petroleum 2051 lagged the market. From a sector perspective, auto manufacturers underperformed after several companies issued profits warnings and potential factories closure due to higher costs and competition. The Fund has lower weight to the sector than its benchmark, however the exposure to Volkswagen impacted returns by 4bp due to spread widening.

During September new issues flooded the market however most came at fair levels versus existing curves, and several have traded wider to re-offer. We believe in times of tight spreads and falling yields, investors sometimes are tempted to chase yields and add risk. However, we believe the opposite strategy to be better, and improve quality at still attractive levels and wait for a better entry point to add credit risk. The Fund has maintained its conservative approach to credit risk with a barbell strategy that improves symmetry of returns under different scenarios. We expect October to increase volatility on the back of geopolitical events which could increase trading opportunities and dispersion in spreads.

Outlook

The Fed’s 50bp cut in our view can be seen as the first move to finding a new interest rate equilibrium. The market and the Fed appear have to moved more into line, however bonds continue to price a more aggressive path than policymakers before anticipating higher long term rates. The first cuts seem relatively clear cut given how tight the policy stance appears to be, however, 2025 rate cuts could depend on how resilient the economy remains. Rate cuts are likely to have some stimulatory impact, particularly for consumers and eight 25bps cuts to our mind seems aggressive if the economy continues to expand. Although there are some cracks in areas such as credit delinquencies in certain socio-economic groups and commercial real estate, the core structural economic data such as unemployment and service sector surveys continue to suggest weakness is in the manufacturing sector is being counterbalanced. Arguably, the bond market is pricing in risk that these cracks could quickly open, and yields consequently lower than the Fed’s near term projections. With the US elections approaching, we expect the market to remain volatile. Fiscal policy is largely expected to remain supportive, but arguably a Trump Presidency comes with more inflationary risks, representing a risk to current market pricing. As a consequence we remain somewhat cautious going into the final quarter of the year. The optimism in the government bond market extends into the credit markets. Spreads remain near cyclical tights despite new issuance flooding markets ahead of the elections. Any widening has largely been bought into, supporting returns. Given this backdrop we have positioned the portfolio with a few core views in mind.

Firstly, the yield curve is likely to steepen in either a recessionary or reflationary environment. As such, our preference is to take duration risk in the most interest rate sensitive areas of the yield curve, whilst being neutral to short risk at the longer end of the curve. In a recessionary environment government yields are likely to decline, whilst spreads may widen. High quality duration should outperform, so any duration in longer maturities should be of higher credit quality in our view. As a consequence, portfolio duration exposure is focused on higher quality issuers. The core economic view remains for a stable economic environment. In this environment we anticipate spreads will remain relatively tight for some time but the room for further compression is limited with the pick up in switching into lower quality ratings buckets. As such we continue to hold lower cohorts of the credit quality spectrum, but are principally looking to maintain a low average duration in this allocation to limit the downside risks should economic data deteriorate quickly.

We continue to believe in an environment where spreads are tight, and a flexible mandate in corporate bonds that allows the manager to extract yields from the most attractive opportunities globally that can provide an attractive way to gain a pick up in yield without shifting down the quality spectrum. The market backdrop has favoured countries that have generally had a weaker financial footing over the last couple of years. With risk premiums now low, we think there is limited upside from this trade, whilst the Fund offers exposure to resilient economies which will be more stable in the event that there is a more malign shift in either the interest rate or economic environment.

Date:

Fund Managers

Find out more

Disclaimer

MARKETING COMMUNICATION

For professional clients, qualified investors and accredited investors only. The value of investments and the income derived from them can fall as well as rise, your capital is at risk. Note: Past performance is not a guide to the future. Returns may increase or decrease as a result of currency fluctuations.

All sources: EFG Asset Management (UK) Limited ("EFGAM"), Factset, Bloomberg, Morningstar as at end of the month.  Any other sources as applicable. 

This document has been produced by EFG Asset Management (UK) Limited for use by the EFG International  ("EFG Group" or "EFG") worldwide subsidiaries and affiliates within the EFG Group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389736. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111. 

This document has been prepared solely for information purposes. The information contained herein constitutes a marketing communication and should not be construed as financial research or analysis, an offer, a public offer, an investment advice, a recommendation or solicitation to buy, sell or subscribe to financial instruments and/or to the provision of a financial service. It is not intended to be a final representation of the terms and conditions of any investment, security, other financial instrument or other product or service. The content of this document is intended only for persons who understand and are capable of assuming all risks involved. Further, this document is not intended to provide any financial, legal, accounting or tax advice and should not be relied upon in this regard. The information in this document does not take into account the specific investment objectives, financial situation or particular needs of the recipient. You should seek your own professional advice (including tax advice) suitable to your particular circumstances prior to making any investment or if you are in doubt as to the information in this document. 

Performance results shown are net of applicable fees and expenses. The value of investments and the income derived from them can fall as well as rise, and you may not get back the amount originally invested. Past performance is no indicator of future performance. Investment products may be subject to investment risks, involving but not limited to, currency exchange and market risks, fluctuations in value, liquidity risk and, where applicable, possible loss of principal invested. Some funds may have high volatility owing to portfolio composition or the portfolio management techniques utilised or be subject to various other risk factors. Such risks are set out in the Prospectus and KIID/KID.

A copy of the English version of the prospectus of the Fund and the key investor information document relating to the Fund is available on www.newcapital.com and may also be obtained from EFG Asset Management (UK) Limited. Where required under national rules, the key investor information document/the key information document will also be available in the local language of the relevant EEA Member State. 

The information provided in this document is not the result of financial research conducted by EFGAM’s research department. Therefore, it does not constitute investment or independent research as defined in EU regulation (such as “MIFID II” or “MIFIR”) nor under the Swiss “Directive on the Independence of Financial Research” issued by the Swiss Banking Association or any other equivalent local rules. Investors should carefully read the Prospectus and the Key Investor Information Document (KIID) and review such documents prior to taking any investment decisions.  This information can be obtained on request and free of charge from your client relationship officer.

Waystone Management Company (IE) Limited is the appointed Management Company and is regulated by the CBI. The Manager is a private limited company incorporated in Ireland under the company registration number C123529 with its registered office at 4th Floor, 35 Shelbourne Road, Ballsbridge, Dublin, D04 A4E0, Ireland.
 
Although information in this document has been obtained from sources believed to be reliable, no member of the EFG group represents or warrants its accuracy, and such information may be incomplete or condensed. Any opinions in this document are subject to change without notice. This document may contain personal opinions which do not necessarily reflect the position of any member of the EFG group. To the fullest extent permissible by law, no member of the EFG group shall be responsible for the consequences of any errors or omissions herein, or reliance upon any opinion or statement contained herein, and each member of the EFG group expressly disclaims any liability, including (without limitation) liability for incidental or consequential damages, arising from the same or resulting from any action or inaction on the part of the recipient in reliance on this document.

EFG and its employees may engage in securities transactions, on a proprietary basis or otherwise and hold long or short positions with regard to the instruments identified herein; such transactions or positions may be inconsistent with the views expressed in this document.  

The availability of this document in any jurisdiction or country may be contrary to local law or regulation and persons who come into possession of this document should inform themselves of and observe any restrictions. This document may not be reproduced, disclosed or distributed (in whole or in part) to any other person without prior written permission from an authorised member of the EFG Group.

Financial intermediaries/independent asset managers who may be receiving this document confirm that they will need to make their own independent decisions and in addition shall ensure that, where provided to end clients/investors with the permission from the EFG Group, the content is in line with their own clients’ circumstances with regard to any investment, legal, regulatory, tax or other considerations. No liability is accepted by the EFG Group for any damages, losses or costs (whether direct, indirect or consequential) that may arise from any use of this document by the financial intermediaries/independent asset managers, their clients or any third parties.

Comparisons to indexes or benchmarks in this material are being provided for illustrative purposes only and have limitations because indexes and benchmarks have material characteristics that may differ from the particular investment strategies that are being pursued by EFG and securities in which it invests.

The information and views expressed herein at the time of writing are subject to change at any time without notice and there is no obligation to update or remove outdated information.
 
Risks associated with debt instruments with loss-absorption features – the Fund/Note/Account may invest in debt instruments with loss-absorption features, for example, contingent convertible debt securities (“CoCos”), senior non-preferred debts and subordinated debts issued by financial institutions. These debt instruments are subject to greater risks when compared to traditional debt instruments as such instruments typically include terms and conditions which may result in them being partly or wholly written off, written down, or converted to ordinary shares of the issuer upon the occurrence of a pre-defined trigger event (e.g. when the issuer is near or at the point of non-viability or when the issuer’s capital ratio falls to a specified level). Such trigger events are likely to be outside of the issuer’s control and are complex and difficult to predict and can result in a significant or total reduction in the value of such instruments.
 
Country of origin of the collective investment scheme:  Ireland.  The information contained in this document is merely a brief summary of key aspects of the fund.

More complete information on the fund can be found in the relevant memorandum and articles of association, prospectus, key information document, the addenda, the supplements and the most recent audited annual report and the most recent semi-annual report. These documents constitute the sole binding basis for the purchase of fund units. Copies of these documents are available free of charge and may be obtained upon request from www.newcapital.com and also as follows:

Ireland: from the registered office of the Fund at 35 Shelbourne Road, Ballsbridge, Dublin, Ireland

United Kingdom:  from the UK facilities agent, EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AF, United Kingdom

Switzerland: from the Swiss representative, CACEIS (Switzerland) SA, Route de Signy 35, CH-1260 Nyon 2 and the paying agent, EFG Bank SA, 24 Quai du Seujet, CH-1211, Geneva 2, Switzerland.

Italy: from the Italian paying agent, All funds Bank S.A.U., Milan Branch, Via Santa Margherita, 7 – 20121, Milan, Italy

Germany: from the German Facility Agent, FE fundinfo (Luxembourg) S.a.r.l. 6 Boulevard des Lumières, Belvaux 4369 Luxembourg

Austria, France, Luxembourg, the Netherlands, Portugal, Spain and Sweden: from the European Facility Service provider, FE fundinfo with registered address 6 Boulevard des Lumières, Belvaux, 4369 Luxembourg

Cyprus: from the Cypriot Paying Agent Eurobank Cyprus Ltd, 41 Makariou Avenue, 1065, Nicosia, Cyprus

Greece: from the Greek Paying Agent, Eurobank S.A., 8 Othonos Street, 10557 Athens, Greece

A summary of investor rights associated with an investment in the Fund shall be available in English from www.newcapital.com.

Termination of marketing arrangements: Waystone Management Company (IE) Limited have the right to terminate the arrangements made for marketing the Fund in certain jurisdictions and to certain investors. In such circumstances, Shareholders in the affected EEA Member State will be notified of this decision and will be provided with the opportunity to redeem their shareholding in the Fund free of any charges or deductions for at least 30 working days from the date of such notification. 

European Union: Waystone Investment Management (IE) Limited is the European investment distributor and is authorized in Ireland as an investment firm under the Markets in Financial Instruments Directive. Waystone Investment Management (IE) Limited acts as a distributor
in the European Union under reference number C1011 and Ireland. Waystone Investment Management (IE) Limited does not provide investment advice on an independent basis.

Hong Kong: This document is issued by EFG Asset Management (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission (‘SFC”) in Hong Kong. The SFC takes no responsibility for the contents of this statement and makes no representation as to its accuracy or completeness. Registered address: 18th Floor, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong. The above information does not constitute an offer, solicitation or invitation, publicity or any other advice or recommendation. Informational sources are believed to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. Investment involves risk. Past performance is not indicative of future results. Before making any investment decision to invest in the Fund, you should read the Hong Kong offering documents and especially the risk factors therein. An investment in the Fund may not be suitable for everyone. If you are in any doubt about the contents of this document, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser for independent professional advice. 

Singapore: This document shall be construed as part of the information memorandum (the "Information Memorandum") for the Fund, which shall be deemed to include and incorporate this document and any other document, correspondence, communication or material sent or provided to eligible participants in relation to the Fund from time to time. Accordingly, this document must not be relied upon or construed on its own without reference to and as part of the Information Memorandum.

The Fund has not been authorised or recognised by the Monetary Authority of Singapore (“MAS”), and the units in the Fund (the "Units") are not allowed to be offered to the retail public. Moreover, the Information Memorandum is not a prospectus as defined in the Securities and Futures Act 2001 of Singapore, as amended or modified from time to time (“SFA”), and statutory liability under the SFA in relation to the content of prospectuses would not apply. The Information Memorandum has not been and will not be registered as a prospectus with the MAS. Accordingly, the Information Memorandum, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Units may not be circulated or distributed, nor may the Units be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public, any member of the public or any person in Singapore, other than under an exemption provided in the SFA for offers made (a) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 304 of the SFA, (b) to a relevant person (as defined in Section 305(5) of the SFA), or any person pursuant to an offer referred to in Section 305(2) of the SFA, and in accordance with the conditions specified in Section 305 of the SFA, or (c) otherwise pursuant to, and in accordance with, the conditions of any other applicable provision of the SFA. The Units are classified as "capital markets products other than prescribed capital markets products" (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018 and Specified Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Information for investors in Australia: 
For Professional, Institutional and Wholesale Investors Only. This document has been prepared and issued by EFG Asset Management (UK) Limited, a private limited company with registered number 7389736 and with its registered office address at Park House, Park Street, London W1K 6AP (telephone number +44 (0)20 7491 9111). EFG Asset Management (UK) Limited is regulated and authorized by the Financial Conduct Authority No. 536771. EFG Asset Management (UK) Limited is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it provides to wholesale clients in Australia and is authorised and regulated by the Financial Conduct Authority of the United Kingdom (FCA Registration No. 536771) under the laws of the United Kingdom which differ from Australian laws.  This document is personnal and intended solely for the use of the person to whom it is given or sent and may not be reproduced, in whole or in part, to any other person.
 ASIC Class Order CO 03/1099 EFG Asset Management (UK) Limited notifies you that it is relying on the Australian Securities & Investments Commission (ASIC) Class Order CO 03/1099 (Class Order) exemption (as extended in operation by ASIC Corporations (Repeal and Transitional Instrument 2016/396) for UK Financial Conduct Authority (FCA) regulated firms which exempts it from the requirement to hold an Australian financial services licence (AFSL) under the Corporations Act 2001 (Cth) (Corporations Act) in respect of the financial services we provide to you. 

UK Regulatory Requirements 
The financial services that we provide to you are regulated by the FCA under the laws and regulatory requirements of the United Kingdom which are different to Australia. Consequently any offer or other documentation that you receive from us in the course of us providing financial services to you will be prepared in accordance with those laws and regulatory requirements. The UK regulatory requirements refer to legislation, rules enacted pursuant to the legislation and any other relevant policies or documents issued by the FCA.  Your Status as a Wholesale Client. In order that we may provide financial services to you, and for us to comply with the Class Order, you must be a 'wholesale client' within the meaning given by section 761G of the Corporations Act. Accordingly, by accepting any documentation from us prior to the commencement of or in the course of us providing financial services to you, you warrant to us that you are a ‘wholesale client’; agree to provide such information or evidence that we may request from time to time to confirm your status as a wholesale client; agree that we may cease providing financial services to you if you are no longer a wholesale client or do not provide us with information or evidence satisfactory to us to confirm your status as a wholesale client; 
and agree to notify us in writing within 5 business days if you cease to be a 'wholesale client' for the purposes of the financial services that we provide to you.

IMPORTANT NOTE: FOR PUBLICATIONS WITH CONTENT RELATED TO FUNDS

Offering Documents 

Neither this document nor any document under which Interests in the New Capital UCITS Fund plc (the “Fund”) are offered is a prospectus, product disclosure statement or other formal disclosure document under the Corporations Act.  Interests in the Fund may not be offered, issued, sold or distributed in Australia other than by way of or pursuant to an offer or invitation that does not need disclosure to investors either under Part 7.9 or Part 6D.2 of the Corporations Act, whether by reason of the investor being a wholesale client (as defined in section 761G of the Corporations Act and applicable regulations) or otherwise. Nothing in this document nor any document under which interests in the Fund are offered constitutes an offer of interests in a financial product or financial product advice to a 'retail client' (as defined in section 761G of the Corporations Act and applicable regulations).

The issuer of the interests in the Fund relies on exemptions available under Australian law from the need to hold an AFSL for the provision of financial services to Australian wholesale clients. Note that as all investors must be wholesale clients, no cooling off rights are available in relation to an investment in the Fund.

Contact us:
Park House
116 Park Street
London
W1K 6AP
UK

+44 (0)20 7491 9111
enquiries@newcapital.com

© EFG. All rights reserved