APS Funds SICAV plc net asset value down 14.8% in first six months of 2022

The net asset value of APS Funds SICAV plc decreased from €195,557,612 in January 2022 to €166,552,465 at the end of June this year, on offset of €29 million, or just over 14.8%.

APS Funds SICAV plc is a company organised as a multi-fund investment company with variable share capital. It consists of four funds: the APS Income Fund, the APS Regular Income Ethical Fund, the APS Diversified Bond Fund and the APS Global Equity Fund.

The company’s interim financial statements for the first six months of the year, published this week, reveal that all four sub-funds registered a decrease in net asset value.

APS Income Fund

The net asset value of the APS Income Fund decreased from €88.41 million to €75.87 million during the first six months of 2022.

The sub-fund invests primarily in Malta government bonds and corporate bonds listed on the Malta Stock Exchange, predominantly in euro and which may be at a fixed or floating rate, rated or unrated.

During the period from 31 December 2021 to 30 June 2022, the share price of the APS Income Fund Accumulator Shares decreased by 7.09% from €189.7413 to €176.2839.

The share price of the APS Income Fund Distributor Shares decreased by 8.13% from €125.1633 to €114.9902. The share class distributed a dividend of €1.39485 per share during the six-month period ending 30 June 2022.

In the primary market, the sub-fund was active in Malta government stocks as well as in the debut equity offering by APS Bank plc. Meanwhile, the Investment Manager reduced exposure to international corporate bonds due to its less favourable outlook on credit spreads. At the same time, tactical duration plays were implemented via purchases and sales of high-quality bonds issued by Eurozone member states.

At the end of 30 June 2022, the APS Income Fund’s asset allocation was made up as follows:

• Local corporate bonds – 41.18%
• Local equities – 24.48%
• Local government bonds – 22.85%
• International corporate bonds – 6.07%
• International government bonds – 0.38%
• Term deposits – 1.73%
• Cash and foreign exchange forward contracts – 3.31%

APS Regular Income Ethical Fund

The Net Asset Value of the APS Regular Income Ethical Fund decreased from €43.31 million to €35.42 million during the six-month period under review.

The sub-fund invests primarily in international government and corporate bonds, and in direct equities.

In the first six months of 2022, the share price of the APS Regular Income Ethical Fund Class A Shares decreased by 13.70% from €1.5665 to €1.3519.

The share price of the APS Regular Income Ethical Fund Class B Shares decreased by 14.93% from €1.2149 to €1.0335. The Share Class distributed a dividend of €0.01633 per share.

The share price of the APS Regular Income Ethical Fund Class C Shares decreased by 13.73% from €1.5589 to €1.3448, while the price of the APS Regular Income Ethical Fund Class D Shares decreased by 14.94% from €1.2112 to €1.0302. The Share Class distributed a dividend of €0.01606 per share.

During the period under review, the investment manager reduced its equity exposure both direct and via collective investment schemes, crystalised gains on selected credit positions and reinvested the proceeds into more attractively priced bonds. They reduced exposure to Japanese and Australian government bonds and added exposure to New Zealand and Greek government bonds.

As a result of Russia’s invasion of Ukraine, and weakness in the price of bonds issued by European peripheral governments, the investment manager liquidated the position in Italian Government Bonds. The challenging economic outlook led to a more conservative approach as exposure to corporate bonds was trimmed and cash balances were increased.

At the end of June 2022, the sub-fund’s asset allocation was made up as follows:

• Corporate bonds – 31.47%
• Government and supranational bonds – 32.82%
• Equities– 27.41%
• Cash – 8.29%

APS Diversified Bond Fund

The net asset value of the APS Diversified Bond Fund decreased from €52.25 million to €44.63 million.

The share price of the Class A Shares decreased by 13.75% from €1.1185 to €0.9647, that of Class B Shares decreased by 15.05% from €0.9894 to €0.8405. The share class distributed a dividend of €0.01402 per share during the six-month period ending 30 June 2022.

In the first six months of 2022, the price of the APS Diversified Bond Fund Class C Shares decreased by 13.74% from €1.0930 to €0.9428, Class D Shares decreased by 15.06% from €0.9893 to €0.8403, and Class G Shares decreased by 14.91% from £0.9980 to £0.8492.

At the beginning of the year, the investment manager initiated exposure to Chinese sovereign and corporate bonds, based on the divergent monetary policy between China and other major economies. Soon after, war broke out in Ukraine and the investment manager sought to protect the sub-fund’s capital by increasing portfolio duration, selling credit that was deemed to be too expensive, reducing exposure to Chinese corporate bonds, and shedding exposure to the Hungarian Forint.

At the end of June this year, the sub-fund’s asset allocation was made up as follows:

• Government and supranational bonds – 47.37%
• Corporate bonds – 41.84%
• Exchange traded funds – 2.39%
• Cash and foreign exchange forward contracts – 8.40%

APS Global Equity Fund

The net asset value of the APS Global Equity Fund decreased from €11.59 million to €10.63 million during the period under review.

The investment seeks to achieve long-term capital appreciation through investment, primarily, in a diversified portfolio of equity securities. It also invests in other types of securities such as preferred stock, rights, warrants, contingent convertible bonds and securities convertible into common equity shares.

During the period from 31 December 2021 to 30 June 2022, the share price of the Accumulator Shares decreased by 16.47% from €1.2036 to €1.0054, while the share price of the Distributor Shares decreased by 17.67% from €1.1997 to €0.9877. The share class distributed a dividend of €0.01613 during the period ending 30 June 2022.

The investment manager continued to increase exposure to travel related stocks as global mobility indicators improved following a pivot on stance towards the Covid-19 pandemic. Following the invasion of Ukraine, exposure to Taiwanese equities and Nordic exposures on increased geopolitical risk was reduced.

At the end June, the Sub-Fund’s asset allocation was made up as follows:

• Equity – 90.00%
• Cash – 10.00%

Turbulent six months

In its interim report APS Funds SICAV plc describes the first half of 2022 as one of the most turbulent six months global markets have ever seen.

Nearly all asset classes suffered significant losses across geographies with developed market equities experiencing the worst half in over 50 years and the US 10-year Treasury bond fairing the worst since 1788, according to Deutsche Bank estimates.

13 trillion US dollars were wiped off the value of global stocks, the dollar rose by 9% against a basket of the main world currencies and commodities had the strongest rally since World War I.

The ongoing Covid-19 pandemic was overshadowed by central banks tightening monetary policy in response to record levels of inflation. The US Federal Reserve is set for the fastest course of interest rate rises since 1994 and the European Central Bank has raised interest rates for the first time in a decade.

Markets were also impacted by increasing concerns around growth and the rising risks of recession as inflation erodes discretionary income and accumulated savings.

And Russia’s invasion of Ukraine which began in February 2022, increased geopolitical uncertainty, market volatility and added to inflationary concerns.

The war immediately dampened the economic recovery from the Covid pandemic and cemented the global economy on a course of lower growth and higher inflation.

It also heightened the risk of an energy crisis in Europe which could have far reaching political and economic consequences.

The European Union, the United States and other allied countries were quick to respond to Russian aggression by imposing stringent sanctions on Russia and Belarus.

In terms of market performance, the first half of 2022 saw traditional correlations between asset classes break down with both safe-haven Government bonds and risky assets registering losses. The US 10-year yield rose from 1.51% at the end of 2021 to 3.01% at the end of June 2022, after peaking at 3.49% on 14 June 2022.

Meanwhile, yields on 10-year benchmark government debt issued by Germany and the UK, rose to 1.33% and 2.23% respectively. The yield on Japanese 10-year debt increased to 0.23%.