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EFG New Capital

New Capital Wealthy Nations Bond Fund

Date:

Marketing Communication

Executive Summary

Key events in market

Donald Trump's election saw US Treasury yields initially rise, pushing yields higher, however, an orthodox Treasury Secretary choice helped to stem nerves around the fiscal position, leading to lower yields driving gains. Soft European data, German snap elections and French budget disarray all helped to compress policy expectations in Europe. Credit spreads compressed more broadly, although the late month rally left some pockets of the market lagging.

Key performance & positioning updates

The overall decline in government bond yields was the main driver of gains in November, however, this was offset by wider credit spreads within the portfolio. Segments such as Emerging Market Investment Grade and Subordinated debt lagged the broader tightening in credit spreads, which created a relative drag for the portfolio. There were no material changes in portfolio strategy. We continue to look to minimize credit duration whilst retaining an overall carry advantage.

Market Update

The election of Donald Trump as US President and the Republican Party gaining control of the House of Representatives and the Senate have triggered a strong rally in global equities. The performance, which brought the MSCI All Countries Index to a new record, was driven mainly by the US market, where the S&P500 index rose 5.7%, while most other markets have fallen or risen little since the US election day.

This reflects the expectation that the policies of the new US administration, including the imposition of tariffs on exports to the US, tax cuts, and a fight against illegal immigration, will favour the growth in the US at the expense of its trading partners. A side effect of Trump's announced policies was the increase in inflation expectations in the US and the upward revision of expectations on the Federal Reserve's monetary policy.

The initial rise in US Treasury yields was reversed after the appointment of Scott Bessent as Treasury Secretary, which markets see as a safeguard against unsustainable fiscal policies and aggressive trade policies. In final trading days of November, US government bonds have recovered, and yields have fallen below their level on election day.

In most other major economies, the revision of monetary policy expectations has been less pronounced than in the US or went in the direction of anticipating a more accommodative stance. This caused a widening of the yield spread over US government bonds and boosted the US dollar against other currencies, in particular the euro.

The single currency and European assets were burdened by the threat of US tariffs, increased political uncertainty in Germany and France, and the weakness of the Chinese economy. However, the German general elections in February could improve the growth outlook thanks to a more expansionary fiscal policy and structural reforms under a new government. Furthermore, the expectation of further stimulus in China leaves room for a recovery in demand in 2025, which will benefit the European economy more than other economic areas.

Fund Performance & Positioning

The Fund delivered positive returns in November (+0.7% vs +1.1% of the benchmark) with the primary driver declining government bond yields. Despite having sold off initially in the wake of the US election, government bond yields staged a recovery in the latter half of the month. This however, left some less Treasury sensitive bond yields lagging in the late month rally. So whilst credit spreads tightened at a market level, there were notable laggards, largely in areas such as emerging markets (EM) and subordinated debt. This proved to be the key relative drag on the portfolio over the course of November, however on a year to date basis the Fund has bucked the trend of underperforming EM sovereign IG spreads, and generated substantially positive returns from security selection within countries. The lagged effects in some areas were evident in the portfolio as the elements that dragged on the portfolio were primarily BBB perpetuals. Latin America sovereign risk traded wider, impacting comparative returns from the likes of Mexico, Chile and Peru versus Investment Grade risk within the portfolio. Saudi was a notable outperformer following an upgrade from A1 to Aa3 at Moodys. Exposure to PIF (Public Investment Fund) was amongst the top performers as the Sovereign upgrade extended to the Quasi sovereign entities, whilst EIG Pipelines lagged the market. We made no meaningful shifts in portfolio strategy although we continued to reduce exposure to some expensive areas of the market. The upgrade to Saudi shifted the relative weight of AA vs A rated credit in the portfolio. We continue to maintain a barbelled strategy focusing on allocating duration risk to higher rated issuers, and maintaining a carry advantage through shorter dated lower rated entities.

Outlook

Markets have largely priced an extremely benign environment for credit going into 2025. The stable growth outlook and easing of not only monetary conditions but financial conditions remains a significant fundamental tailwind. The advent of Trump 2.0 may prove more inflationary, and the Fed may have to shift to a more cautious path of easing should inflation prove more sticky. Whilst consensus, we believe a steeper yield curve is likely in 2025 and this may be driven more by lower short dated yields rather than a material increase in longer yields. The US economic position continues to contrast with that in Europe. Growth is softer and the political backdrop much more uncertain given a looming election in Germany and budgetary disarray in France. The European Central Bank may ultimately have to ease policy more aggressively to counterbalance softer growth, especially with inflation heading below target. Despite a more turgid growth outlook, the broader resilience of corporate balance sheets and easing in policy is supportive of the global credit cycle and consequently credit spreads in Europe.

Whilst we have a constructive outlook for the fundamental drivers of credit, valuations are undeniably rich at current levels, although within EM Investment Grade we believe there is some moderate room for catch up versus US corporate IG. It has been notable that EM credit has lagged DM this year, perhaps masked by positive returns overall. We suspect that this in part is due to negative flows from the EM asset class, but also due to the material outperformance of the high yield and in particular distressed names in 2024. We think whilst the discount is not huge, the more credit spreads compress in DM, the more attractive EM will look in comparison. For resilient economies, the risks around US global tariffs and a stronger US dollar are less material to their credit profile. In this sense the portfolio's approach to selection creates a relative source of resilience. Equally low average debt to GDP levels present less of a material risk to fiscal policy and longer term sustainability. It has been notable that political risks in countries such as Romania and France where either debt or external dependency are a challenge, have seen greater market volatility. As such in a base case scenario of trend global growth, spreads are likely to moderately compress, whilst in a downside scenario, we believe the portfolio retains its resilience.

Having said this, credit spreads overall remain tight, and we remain defensively positioned relative to history. The portfolio continues to run a strategy of credit carry and duration in quality bonds. This environment may continue for sometime absent of a material downside risk. The portfolio also continues to enjoy a comparative carry advantage thanks to active management and a selective process, which we believe is likely to be the main driver of returns in a base case scenario. Rotation into longer duration BBB and even increasing weight in high yield may be attractive on any market correction, and absent a downturn. Overall however we continue to maintain a defensive stance.

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.
 
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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

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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. 

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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:
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UK

+44 (0)20 7491 9111
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