Global equity markets had a rather unimpressive third quarter, with developed markets maintaining a relatively flat trajectory, whilst emerging markets were in the red mainly because of the sell-off in China, driven by the uncertainty surrounding the regulatory changes emerging from Beijing. Similarly, global sovereign bond yield barely changed when compared to the beginning of the period, notwithstanding the increasing hawkish stance being taken by several Central Banks.
US equities made marginal gains in Q3. Strong earnings had lifted US stocks in the run up to August. However, growth and inflation concerns late in the quarter meant US equities retraced their steps in September, as the Federal Reserve gave subtle hawkish signals culminating into the announcement that it will start tapering its quantitative easing program. The unexpected shift in the Federal Reserve’s stance comes on the heel of raising inflation, in spite of stunned real GDP growth.
In the Eurozone, the quarter had started with gains following the positive earnings announced in Q2 and ongoing economic recovery from the pandemic. The Delta variant of Covid-19 continued to spread but most countries have now fully vaccinated around 75% of their population against the virus, enabling many restrictions on travel and other activities to be lifted. Annual inflation in the Eurozone was estimated at 3.4% in September, up from 3.0% in August, and 2.2% in July. The European Central Bank said that it would tolerate any moderate and transitory overshoot of its 2.0% inflation target.
Among corporate bonds, high yield made positive returns- while investment grade credit changed slightly. European investment grade outperformed government bonds, while the US market was in line with Treasuries. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.
Merill Total Return Income Fund
Share Class 30/09/2021 30/06/2021
Accumulator (EUR) 0.5749 0.5708
Distributor (EUR) 0.5337 0.5314
As at 30 September 2021, the fund had €41.34 million in assets under management. The fund generated another positive quarter, which was due to the asset allocation in place. Compared to the previous quarter, we retained a similar asset allocation weighting and therefore, kept an underweight position in government bonds, which are very sensitive to interest rate risk. Again, in this quarter investment grade bonds generated a positive return, and the equity portion remained the main contributor towards the positive return.
Merill High Income Fund
Share Class 30/09/2021 30/06/2021
Accumulator (EUR) 0.5387 0.5352
Distributor (EUR) 0.4675 0.4681
GBP Hedged Distributor (GBP) 0.5082 0.5088
As at 30 September 2021, the fund had €63.66 million assets under management.
During this quarter, we increased our equity and high yield debt exposure and further reduced our exposure in investment grade bonds. The latter were reduced to improve the yield and mitigate interest rate risk. Once again, the Fund’s underlying equity exposure produced the lion's share of the positive return. The High yield debt allocation also produced positive results, whereas the investment grade remained flat.
Merill Global Equity Income Fund
Share Class 30/09/2021 30/06/2021
Accumulator (EUR) 0.6063 0.6026
Distributor (EUR) 0.5879 0.5859
As at 30 September 2021, the fund had €18.61 million assets under management. The fund registered another positive quarter. The main two sectors contributing to the upside were energy and financial companies. Such performance was mainly attributed to the current energy supply shocks and yield pickup evidenced in the month of September. Also during this quarter we continued to add to selective equities, namely in industries that retain an edge in such an environment such as financials and healthcare.
Merill Strategic Balanced Fund
Share Class 30/09/2021 30/06/2021
Accumulator (USD) 1.0191 1.0379
As at 30 September 2021, the fund had $29.58 million assets under management. In this quarter, we continued to add to our equity and high yield bond allocation. Within the equity exposure, we have added to the financial and healthcare sector and reduced some info tech companies that were mainly exposed to China. In the bond universe, we have realised gains on a number of bonds which were paying a low yield and used the proceeds to enter into higher yielding bonds. The rationale for the latter shift was aimed to mitigate interest rate risk.
This document is issued by Jesmond Mizzi Financial Advisors Limited (JMFA) as Managers of Merill SICAV plc. JMFA (IS30176) of 67, Level 3, South street, Valletta, VLT 1105 is licensed to conduct investment services business under the Investments Services Act by the MFSA of Triq l-Imdina, Zone 1, Central Business District, Birkirkara, Malta and is a member firm of the Malta Stock Exchange. Merill SICAV plc is incorporated and licenced as an open ended collective investment scheme, registered in Malta, qualifying as a Maltese UCITS with effect from the 16th October 2015. This document does not intend to give investment advice and the contents therein should not be construed as such. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this document. Past performance is no guide to future performance and the value of investments may fall as well as rise.