21 November 2024

CQS New City High Yield Fund Limited
("NCYF" or the "Company")

Monthly Factsheet as at 31 October 2024

The Company's Fact Sheet as at 31 October 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 October 2024.

Ian 'Franco' Francis, Investment Manager at New City High Yield Fund comments:

"Economic data for the UK before the Budget showed private sector growth slipping, at an 11-month low overall, with services and manufacturing both posting weaker data. Although both sectors were still growing, companies cited uncertainty and loss of confidence over the Budget as the main reasons for this low growth.

A worrying element of this was the news that many businesses were reducing headcounts for the first time this year in the services and manufacturing sectors. One positive was the cooling in the cost of inputs to both services and manufacturing, which the MPC of the Bank of England will take as a positive.

The Budget, which came at the end of the month, was a significant tax raid on the private sector, with businesses across the board being hit by both the increase in the minimum wage and a hike in National Insurance contributions, which will rise to 15% in April 2025, raising the forecast to £25bn. This will likely push inflation higher as costs are passed on to end users, and private sector employees are likely to see lower pay increases going forward and possibly less job security if the companies that employ them struggle to survive as margins are squeezed further.

The Budget increases spending by £70 billion annually, with two-thirds on current and one-third on capital spending. Half is funded through tax increases, which raise £36 billion annually and push the tax take to a record 38% of GDP. Whether or not this leads to the growth forecasted in the budget is open to question. We note that nothing has been done about unfunded gold-plated public sector pensions, which will negatively affect future government borrowing and increase the burden on the private sector. Employees and their employers find it more challenging to build a pension to sustain them through retirement. The immediate threat is interest rates remaining higher for longer, with the credit rating agency Moodys commenting that the Budget poses a new challenge for UK public finances; the Government gilt market was already reflecting this, with the yield on the 10-year gilt reaching 4.53% before dropping back slightly to 4.43% at the close of the month.

The economic outlook from Europe is not particularly encouraging. Although the service sector shows signs of growth, the manufacturing sector continues to experience significant challenges and remains stagnant. Germany had more bad news in the pipeline, with Volkswagen announcing the closure of three manufacturing plants, cutting salaries by 10%, and creating further redundancies, which was not an easy scheme to implement with German employment law. The cause was the surplus of cheap Chinese EVs flooding European markets and the Chinese domestic market. This will negatively affect the whole European motor manufacturing sector and Germany. Further bad news came from the inflation figure being higher than the previous month, which will probably mean that any ECB rate cut for December is likely only 25bp.

Figures coming out of the US showed continued robust growth and inflation below the Federal Reserve's 2% target. Although businesses are cautious about hiring in front of the closest and most controversial Presidential election in living memory, markets will no doubt react to whatever result and adjust accordingly. A lot is going to occur after this comment, written before the result.

For the company this month, it went XD 1p/share to be paid at the end of November. The principal transactions for the portfolio were the refinance of the Ithaca Energy 9% 2026 bond, which was replaced by an 8.125% 2029 bond. As this had a lower coupon, we only recycled 60% of the Funds, with the remaining being invested in NextEnergy Solar Fund ordinary shares. Greenfood AB FRN was refinanced by Greenfood AB 10.038% in 2028, and all of this holding was reinvested into the new bond."

-ENDS-

About CQS New City High Yield Fund Limited

CQS New City High Yield Fund Limited aims to provide investors with a high dividend yield and the potential for capital growth by investing in high-yielding, fixed interest securities. These include, but are not limited to, preference shares, loan stocks, corporate bonds (convertible and/or redeemable) and government stocks. The Company also invests in equities and other income-yielding securities.

Since the Fund's launch in 2007, the Board has increased the level of dividends paid every year. As at 31 December 2023, the Fund's dividend yield is 9.13%. In addition to quarterly dividend payments, the Fund seeks to deliver investors access to a high-income asset class across a well-diversified portfolio with low duration to help mitigate interest rate risk.

Further information can be found on the Company's website at https://ncim.co.uk/cqs-new-city-high-yield-fund-ltd/