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Merill Funds 2020 Q3 Commentary
Merill SICAV - 28.10.2020

Merill Funds Update: July to September 2020

Quarterly markets review:

Overall, on the global scene this quarter was a positive one notwithstanding several countries experiencing spikes in coronavirus infections following the initial attempt to open up economies back in June followed, by the reintroduction of localised restrictions in the attempt to curb the virus. Regionally the top equity performers were Asia and the US with Europe and the UK lagging behind. Sovereign bond markets experienced a mellow quarter whereas corporate bonds followed the global positive trend. In July the EU approved the €750 billion fund after much contention. This fund will be distributed among member states in the form of grants and loans to aid in the recovery from the pandemic. The improvement in Eurozone economic data waned as the quarter came to an end, highlighted by the flash purchasing manager’s index (PMI) falling to 50.1 down from 51.9 in August. A PMI below 50 indicates an economic contraction. In addition, the annual inflation turned negative, at -0.2% in August compared to 0.4% in July. The worst performing sectors were energy and financials whilst materials and consumer discretionary advanced.

Throughout most of the quarter, US equities continued their positive momentum, buoyed by a dovish monetary policy from the Federal Reserve. Late in September, the markets went risk-off again as increased worries on the containment of Covid-19, the refreshing of the fiscal stimuli and the uncertainty over a smooth transition of power following the November election began to weigh heavier. In August most US economic indicators continued to beat the consensus expectations albeit at a slower rate than previous months. Similar to the Eurozone, consumer discretionary stocks, particularly restaurants performed well whereas energy stocks lagged behind given subdued fuel demand.

Government bond yields were a mixed bag, US and UK 10-year yields increased (prices fell) whereas their Continental European counterparties experienced a drop in yield (prices increased). This was mostly due to the Fed disappointing the market by leaving policy unchanged and the positive sentiment created with the approval of the EU pandemic recovery fund. Corporate bonds enjoyed a good quarter with investment grade bonds returning 1.8% and high yield bonds returning 4%.

 

 Merill Total Return Income Fund

Share Class

30/09/2020

30/06/2020

Accumulator (EUR)

0.5400

0.5386

Distributor (EUR)

0.5058

0.5059

 

 

 

 

As at 30 September 2020, the fund had €34.18 million in assets under management. Whilst we held on to the overweight position in the high quality investment grade bonds we have taken some profits on bonds which saw their price going up in a very short period of time on the back of the ECB stimulus. The latter bonds were replaced with positive yielding bonds. In the equity segment we further increased our equity allocation to capture any upside momentum in the market. The German market remains one of our favourite market to capture any European rebound in the financial markets. Further sector rotation was performed by reducing cyclicals and adding information technology and healthcare to our preferred sectors. From an asset allocation perspective, investment grade and sovereign bonds were the main positive contributors.

 

 

Merill High Income Fund

Share Class

30/09/2020

30/06/2020

Accumulator (EUR)

0.4962

0.4943

Distributor (EUR)

0.4444

0.4464

GBP Hedged Distributor (GBP)

0.4834

0.4865

 

 

 

 

 

 

As at 30 September 2020, the fund had €45.65 million in assets under management. In this fund we aim to strike a balance between the preservation of capital and retaining an attractive income yield. We are trying to achieve the latter by holding a good quality high yield segment favouring BB versus lower rated bonds. We increased the equity exposure, added to the high yield segment and took profits on some investment grade bonds. Yields in the high yield market fell however, they are still higher than the beginning of the year, therefore, despite bonds are being more expensive compared to previous quarter, we are still finding some interesting yields. The main performance contributors for the period were the high yield and investment grade bonds.

 

 

Merill Global Equity Income Fund

Share Class

30/09/2020

30/06/2020

Accumulator (EUR)

0.5026

0.5014

Distributor (EUR)

0.4904

0.4910

 

 

 

 

As at 30 September 2020, the fund had €10.67 million in assets under management. The fund continued with the rebound albeit at a slower pace due to the exposure in European equities and Local equities.  The main sector contributing to the upside was once again the technology one. A theme which also performed really well during this pandemic is the ESG theme.  We have retained cash at a low level and increased the level of cash at the latter part of September by taking some profit and performed some sector rotation.  During this quarter we continued to add in selective equities namely in industries that retain an edge in this environment such as information technology, and healthcare. Within the information technology we have included new names to further diversify this segment of the portfolio. We have also increased our preference towards those sectors and companies with an ESG focus.

 

 

Merill Strategic Balanced Fund

Share Class

30/09/2020

30/06/2020

Accumulator (USD)

1.0163

0.9894

 

 

 

As at 30 September 2020, the fund had $23.04 million in assets under management. This quarter has been more of a continuation of what we started in Q2 were we have increased our global equity exposure and favoured sectors such as information technology, data centres and gold miners whilst retaining a good balance between AAA securities and good quality high yield bonds. From a duration perspective we have reduced sovereign duration risk by shifting towards better yielding investment grade corporate bonds and high yield bonds.

 

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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