Alma Selwood Euro High-Grade

Market Review and Outlook

Equity markets showed relative stability in November. Both the S&P 500 and Euro Stoxx 50 posted modest gains of around 0.10%, while the Nasdaq declined by
approximately 1.50%. A major factor behind the performance of the S&P 500 and Nasdaq was the repricing of technology stocks, which make up nearly half of the S&P
500, thus amplifying the impact of any valuation adjustments. On a positive note, earnings results remained broadly supportive, including the much-anticipated report from
NVIDIA. In the debt markets, there was significant long-end issuance for data centre to support AI-related developments. These investments are now increasingly debtfinanced rather than cash-flow-funded, which may affect both credit spreads and yield curves going forward. A positive development was the easing of trade-related
concerns, partly due to early signs of Republican challenges in the upcoming U.S. midterm elections. early voting outcomes pointed to voter dissatisfaction, primarily due to
ongoing inflation pressures and concerns around a government shutdown.Inflation remains under close scrutiny, particularly through CPI and employment data. While the
U.S. administration is urging the Federal Reserve to begin rate cuts and accelerate the easing cycle, the Fed remains cautious, adhering to a data-driven approach.
Despite market volatility, investors continue to price in approximately four rate cuts by the end of 2026. Expectations for a 25bps rate cut at the December 10th meeting
have increased from 70% to 85%.

Globally, yield curves continue to steepen, driven by fiscal policies concern in the U.S., UK, France, and Japan, as well as the long-term investment needs tied to AI-related
infrastructure. In Germany, 10-year yields widened by 5bps, and the 5Y-30Y curve steepened by 6bps. The OAT-Bund spread tightened by 4bps, dropping below 70bps. IR
Swaps cheapened relative to German bonds, with asset swap spreads turning positive. In credit, the Euro Investment Grade (IG) cash index declined by 0.27%, primarily
due to rate movements, while spreads widened slightly. On the synthetic side, the iTraxx Main tightened by nearly 2bps as the basis normalized. Average daily volumes in
iTraxx dropped to €11.5 billion from €14.5 billion the previous month. Trading activity slowed notably toward the end of the month, with Thanksgiving and the upcoming
quieter December period in sight.

The fund now outperforms its benchmark year-to-date, driven by the recent strong performance of synthetic credit relative to cash instruments and a lower duration profile.
Our exposure has returned to its average level (~5x super senior iTraxx Main) as iTraxx spreads fell below 53 basis points. Looking ahead, some volatility is expected
around the upcoming Fed rate decision. However, December is generally not a period associated with active hedging or significant primary market activity, which could
offer a supportive environment for risk assets. While it’s still too early to draw firm conclusions for the year, the very low default risk sentiment has attracted investors
toward junior tranches (since Q3 2023) at the expense of senior ones. As a result, correlation has risen to 85%, and tranches are entering 2026 at attractive valuations. We
do not expect correlation to normalize in the first half of the year unless idiosyncratic stress emerges to temper demand for junior tranches at these elevated correlation
levels.