Disciplined, structured, repeatable investment decisions

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What are the main investment objectives of APS Funds SICAV plc?

The APS Funds SICAV plc is a UCITS-licensed open-ended collective investment scheme. Currently, the scheme offers three distinct funds to investors. The funds have a common objective in maximising total return, meaning that investment returns are generated both from capital gains and from investment income. What distinguishes one fund from another is the respective investment policy and restrictions.

More specifically, the APS Income Fund seeks to generate return by primarily investing in equities and bonds listed in Malta. The APS Diversified Bond Fund seeks to achieve its objective by primarily investing in international debt securities issued both by sovereign issuers and corporations alike. The third fund in the suite is the APS Regular Income Ethical Fund, which invests in the international bond market, and to a lesser extent in global equities. The fund targets sustainable investment returns while avoiding activities that are deemed to be harmful to society.

When was this investment product launched and what has been its investment track record since then?

The APS Income Fund was launched in 2008. This was followed by the APS Regular Income Ethical Fund four years later, in 2012. More recently, in November 2017, the APS Diversified Bond Fund was launched.

Recently two of the funds, the APS Income Fund and the APS Regular Income Ethical Fund have been awarded the highest rating by Morningstar, a rating system that helps investors in evaluating a fund’s performance track record. Morningstar have yet to rate the third fund as it was only launched in 2017.

What is the role of APS Bank within this context?

APS Funds SICAV plc has appointed ReAPS Asset Management Limited as the investment manager of the three funds. ReAPS Asset Management Limited is a wholly owned subsidiary of APS Bank plc.

How does one invest in the funds?

Investing in the funds is easy, with the main points of sale being the APS Bank branches located across Malta and Gozo.

Importantly, investors have a number of options when investing in any one of the three funds. The funds offer both accumulator and income share classes. This means that investors have the option to either invest in a share class that is designed to pay regular dividends or opt for a share class that automatically reinvests investment income. Investment in the funds is also offered in the form of a monthly investment plan, whereby investors can invest from as little as €50 per month.

How are the funds managed?

Our philosophy dictates that a highly disciplined, structured and repeatable investment decision-making process is essential in order to achieve good investment results. This is complemented by integrated risk management, both on an ex-ante and ex-post basis.

Moreover, we adopt a team-based approach to investment decision-making that reduces key-man risk whilst encouraging all team members to put forward investment ideas for consideration by the rest of the team.

What kind of diversification do the funds enjoy?

In 2017, the scheme transitioned to the UCITS regulatory framework. UCITS is short for Undertakings for the Collective Investment in Transferable Securities. Among other things, the UCITS framework provides investor protection in the form of specific diversification rules which must be observed rigorously by the funds.

In addition to abiding by UCITS rules, we as portfolio managers strive to remove idiosyncratic risk from the funds. Put differently, concentrated exposures to any single risky investment position or investment theme are avoided altogether.

What are the associated risk levels?

The funds do not come with a capital guarantee. This should be seen in the context that the funds are not intended for investors with a short-term investment horizon. Having said this, risk and volatility of historical returns differ across the three funds. Potential investors would be wise to consult the scheme’s Prospectus and the Offering Supplement of the individual funds for a description of the risks involved. Additional information can also be found in the Key Investor Information Document that is available both via the website of APS Bank and from any one of the bank’s branches.

What were the performance drivers in the past 12 months?

During the past year, yields on global government bonds have declined, corporate credit spreads have tightened, and equity markets extended their multi-year rally. The combination of heightened global economic uncertainties and easy monetary policy have buoyed markets. A year ago, our macro analysis was indicating the potential for global bond yields to decline. Consequently, we positioned the funds to benefit from a decline in yields. This has worked favourably and has sustained the investment returns of the past 12 months. Our concerns with a slowing global economy lead us to position the portfolios more defensively in terms of both credit and equity risk. Additionally, our tactical investments in non-euro-denominated assets contributed positively towards performance during the past year as the euro as a currency did not perform well.

What is the investment outlook for 2020?

Over the past few years, investors learnt that in order to get their market views right they had to pay particular attention to developments in geo politics and central banking, as those were the two major forces driving market returns. Heading into 2020, we believe that fiscal policy will join monetary policy and geo politics as another major driver of market returns.

Starting with the euro area, the year 2019 ends with Christine Lagarde becoming the Central Banker of the eurozone. We believe that her predecessor, Mario Draghi, has done as much as he could in terms of using monetary tools to support economic performance. We are of the view that Lagarde will press governments of the eurozone to use fiscal policy to boost economic growth which could in turn also support European equity markets. European investors are under exposed to domestic equities as years of sequential economic underperformance coupled with a depreciating currency have forced them to place their money in other regions, most notably the United States. If we see partial repatriation of that capital, both European equities and the Euro currency could find support.

On the other side of the Atlantic, whether or not we see further easing from the Federal Reserve would depend on whether policy makers yield to strong political and market pressure for lower interest rates, or whether they stay put and adjust policy according to incoming data. America is experiencing full employment and this normally tends to produce upward wage pressures, which President Trump would very much welcome as he seeks re-election in 2020. We also believe that the American President is likely to dial down his confrontational approach to China which would help US equities and consequently his chances of re-election. A quieter geo political backdrop coupled with a stable, if not falling, US Dollar would be of great benefit to the global economy in particular developing countries. We also believe that the UK and EU will strive to strike an amicable divorce thus providing further succour to global risky assets.

All things considered, 2020 promises to be a good year for assets such as equities, European in particular, and commodities, especially gold. We also believe that next year, very safe government bonds will struggle to repeat the same performance they had in 2019.

The information contained in this interview represents the opinion of the contributors and is solely provided for information purposes. It is not to be interpreted as investment advice, or to be used or considered as an offer, or a solicitation to sell / buy or subscribe for any financial instruments nor to constitute any advice or recommendation with respect to such financial instruments.

APS Bank plc is a member of the Malta Stock Exchange, and is licensed by the Malta Financial Services Authority to undertake the Business of Banking under the Banking Act 1994 and to conduct Investment Services business under the Investment Services Act 1994 and is enrolled in the Tied Insurance Intermediaries List under the Insurance Distribution Act 2018.

APS Funds SICAV plc is managed by ReAPS Asset Management Limited, a subsidiary of APS Bank plc, and licensed to provide investment services in Malta by the MFSA. APS Funds SICAV plc and its sub-Funds are licensed by the MFSA as a Collective Investment Scheme pursuant to the Investment Services Act and the UCITS Directive.

The value of the investment may fall as well as rise and currency fluctuations may also affect the value of the investment. Past performance is not a guarantee of future performance. Income and frequency of payments are not guaranteed. Investments are to be based on the Fund’s Prospectus, APS Fund Offering Supplement and KIIDs, which may be obtained from APS Bank plc, any of its branches and other licensed investment intermediaries, or www.apsfunds.com.mt. Any initial or exit fees that may apply may lower the amount invested and the amount received upon redemption.