Monthly Fact Sheet as at 31 August 2024
The Company’s Fact Sheet as at 31 August 2024 has been submitted and is available for inspection on the Company’s website, https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd/.
The investment manager updates on the wider macro-economic environment and on key changes to the portfolio positions as at 31 August 2024.
Ian ‘Franco’ Francis, Investment Manager at New City High Yield Fund comments:
Economic data in the UK showed signs of growth, lower inflation and improved job prospects at the forefront. This was referenced as “in the rear-view mirror” at the Number 10 garden speech, where the Prime Minister discussed the coming Autumn Budget set for 30th October. He talked about the possible capital gains tax rises, inheritance tax changes and alterations to pension tax allowances within the private sector. This may have a negative sentiment on investments and money entering the UK’s savings sector.
While unfunded public sector pensions look to remain untouched, we may reach a worrying point for the UK deficit in the not-too-distant future. According to the Office of National Statistics, 18.1% of the workforce is currently in the public sector, with the latest Office of Budget Responsibility forecasting that the net extra cost of funding it will be £7.9bn this year – a total cost of £53.1bn after £45.3bn in contributions. As an example, the UK’s National Health Service (NHS) contributes 23.7% of a member’s salary and the member contributes between 5.2% and 12.5%. One can compare this to the private sector where employers are likely to pay 10% or less into a defined contributions scheme, which has become the more common private scheme since the mid-1990s. This may need addressing as the economy is unlikely to afford unfunded final salary pensions. The Autumn Budget is potentially the most important one for UK individuals and companies since the Thatcher era, though we believe is unlikely to be as positive for the economy.
European data was skewed by the Paris Olympics, with the HCOB Flash Eurozone Services Activity index at 53.3, up from 51.9 in July. German manufacturing remained in recession with no sign of recovery on the horizon; a slump that started in mid-2022 and even the hope of short-term interest rate cuts does not seem to have affected future sentiment. Meanwhile, the Olympic games had a hugely positive effect on the French Services sector, with the activity index at 55.0 up from 50.1 in July. This may be sustained for another month with the Paralympics in early September but should normalise downwards after.
US economic growth looks positive, with strength mostly in the service sector, although it does have problems hiring enough staff, adding to wage inflation further whilst manufacturing remains in the doldrums. We believe this imbalance is the main risk to the US economy and there is danger of it slowing. With the TV debate between Kamala Harris and Donald Trump imminent, we will see how the Presidential election is panning out.
It has been a busy month for the company, with Transocean 11.5% called on the last day of July. Mangrove Luxco 7.775% 2025 and Bidco Relyon Nutec 11.42% 2026 were also called, while Stonegate 8% and 8.25% refinanced. In equities, we reduced our holdings in Diversified Energy and Frontline Ltd early in the month. We reallocated our funds into Tullow Oil 10.25% 2026, Aston Martin Capital 10.375% 2029, Bluewater Holding Bv 12% 2026, Stonegate 10.75% 2029 Bellis Acquisition 8.125% 2030 (Asda), Lifefitgroup 10.53% 2029, 3tGlobal 11.25% 2028 and Cruise Yacht 11.875% 2028. It was certainly busier than a normal August, but necessary when some of the company’s major holdings were refinanced or called away from us.
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