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Merill Funds 2020 Q2 Commentary
Merill SICAV - 31.07.2020

Merill Funds Update: April to June 2020

Quarterly markets review:

This quarter saw a historic rebound of the global capital markets signalling early signs of economic recovery and a shift to a risk-on attitude by investors. This came about as most government imposed lockdown measures were gradually eased and as the unprecedented fiscal and monetary stimuli implemented worldwide took effect. Eurozone shares posted strong gains in Q2 particularly in anticipation of the approval of the European Commission’s proposed €750 billion fund as negotiations with the ‘frugal four’ an apt nickname for the group of countries resisting such a fund make significant progress. This aid package tops up the €540 billion rescue package approved in April and the expansion of the ECB’s pandemic emergency purchase programme to €1.35 trillion. Notwithstanding the economic contraction of 3.6% experienced in the first quarter of the year, economic activity registered marked improvement over the second quarter as shown by the Eurozone composite purchasing managers’ index rise to 47.5 for June which, is just shy of 50, the demarcation point separating expansion from contraction. Most industry sectors achieved a positive return with Information technology leading the way closely followed by industrials, materials and financials. Energy was the worst performing sector as the comeback of demand remains sluggish.

The US equity markets have outperformed their global counterparts over most part of the quarter. Such a performance was mainly fuelled by the Federal Reserve slashing the interest rate further loosening monetary policy, the federal government applying significant pressure on the states to lift their lockdown measures and positive news from the pharmaceutical industry on the development of a vaccine and therapeutics. The dropping weekly jobless claims and strong retail figures also indicated signs of a turn around. The S&P 500 registered what could be described as a v-shaped recovery which was mainly driven by the Information technology giants which top its charts. Towards the end on the quarter, this positive momentum was slowed down with registered spikes in infection cases spreading across the continent and also with the increased social unrest that the country is experiencing.

 

Merill Total Return Income Fund

Share Class

30/06/2020

31/03/2020

Accumulator

0.5386

0.5143

Distributor

0.5059

0.4840

 

 

 

 

As at 30 June 2020, the fund had €36.98 million in assets under management. The rebound in the markets, especially the rally experienced in the investment grade bonds, was captured well due to the overweight position in the fund. We kept our buying stance and further added our overweight in the high quality investment grade bonds as they were trading at discounted prices especially when there was evidence that the ECB will increase the stimulus.

In the latter part of the quarter we also started to increase our equity allocation to capture the upside momentum in the market. The German market was the preferred European country as the country came in with strong fiscal stimulus, this coupled with the ECB’s monetary stimulus, provided enough support for the market to rebound.  In the sovereign space the AAA short term bonds contributed the lion’s share of the positive performance whilst in the credit segment the BBB+ & A+ were the major contributors to the positive upside. From an asset allocation the equity component recorded the highest recovery over the previous quarter with materials being the best sector, namely gold miners.

 

Merill High Income Fund

Share Class

30/06/2020

31/03/2020

Accumulator

0.4943

0.4570

Distributor

0.4464

0.4160

GBP Hedged Distributor

0.4865

0.4538

 

 

 

 

 

As at 30 June 2020, the fund had €49.84 million assets under management. During this atypical period, our target remains to preserve capital and whilst retaining an attractive income yield. The fund was already placed in higher quality high yield debt favouring BB versus lower rated bonds. As opposed to the previous quarter we have increased the equity exposure and added further to the high yield market, to capture the risk-on rebound experienced in the second quarter. In this quarter we have managed to lock-in income rates in line with the objective of the fund from both investment grade and good quality high yield bonds, were the latter income, in previous years, was not even possible in B rated bonds. The main performance contributors for the period were the high yield and emerging sovereign bonds. The decline in USD against major currencies provided a tailwind to the emerging sovereign bonds’ good run.

 

Merill Global Equity Income Fund

Share Class

30/06/2020

31/03/2020

Accumulator

0.5014

0.5553

Distributor

0.4910

0.5438  

 

 

 

 

As at 30 June 2020, the fund had €12.76 million assets under management.The fund had a nice rebound and the main sector contributing to the upside was as expected the technology sector mainly those focused in the info tech.  As opposed to the first quarter were we had increased the cash position, this quarter we have reduced our cash positions and invested in selective equities namely in industries that have an advantage to thrive in this environment such as info technology, telecommunication and Healthcare.

 

Merill Strategic Balanced Fund

Share Class

30/06/2020

31/03/2020

Accumulator (USD)

0.9894

0.9357

 

 

 

As at 30 June 2020, the fund had $27.47 million assets under management. In the initial stages of the strategy build-up, we favoured AAA fixed income securities such as US treasuries and Government of Norway, and bought very selectively quality high yield bonds. In this quarter we have increased our global equity exposure and favoured sectors such as info technology, data centers and gold miners whilst retaining a good balance between AAA securities and good quality high yield bonds. These changes place the fund in a good position to capture the upside and yet retaining defensive positions which may provide some cushion should economic growth stalls again.

 

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.

 

 

 


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