Fund Objective

To provide both income and capital growth

View on Past Performance

The problems in the world's financial markets over the last few months have continued although changing somewhat in nature as time passes. The major change in the last month has been that the markets have become convinced that the worst of the credit crisis is over following actions taken by central banks in the US and Europe.An article by George Soros in the Financial Times explains that the current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the Second World War at intervals ranging from four to 10 years. These periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.The 60-year super-boom is a more complicated case. Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced.The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.

Future Expectations

The combination of the present problems affecting the financial markets which is likely to lead to a slowing in the world economy and thus lower interest rates with the present value offered by the fixed interest investments held by the global bond fund and the possible falls in Sterling means that the fund looks to have good prospects for the future.Due to the difficult financial environment we have been increasing in recent months the percentage of the funds held in safe bonds, those rated AAA or close to that. There are however some financial bonds which are rated quite highly by the credit rating agencies but the prices don't currently reflect this. The reason for this lies in the uncertainties referred to above and will in some cases be justified.The market is however probably taking too gloomy a view overall and we are therefore holding some financial company bonds with a view to recovery. This recovery has started to happen but probably has further to run.

Fund Details