Fund Objective

To consistently outperform the FTSE-A UK Index-Linked > 5 years Index.

View on Past Performance

In line with other fixed interest markets, indexed linked stocks slipped into negative territory over the quarter with the Fund returning -0.8% against its comparable index return of -0.9%. Over a period of significant volatility in global markets, equities fretted over economic growth while bonds worried about inflation.High risk assets such as commodities and emerging markets, which had been the leading performers in 2006, led the sell off; bonds were not immune to this turbulence and yields rose sharply.The yield on the 1.25% 2055 issue, the UK market's longest dated indexed linked bond in issue rose to 1.12% more than doubled from its nadir level of 0.47% achieved in late January; others such as 2.5% 2020 backed up from 1.05% to 1.65% while the 2.5% 2011 rose from 1.45% to 1.85% during the same period.The Fund maintained a fully invested position using periods of market weakness to purchase additional stock while the opportunity was also taken to lower the duration risk within the portfolio.

Future Expectations

Indexed linked stocks have had to contend with an increasing amount of issuance from government, quasigovernment and corporate lenders. This comes at a time when specific areas of the market - notably longer maturities - have been subjected to exceptional demand to match pension liabilities.The timing of supply and demand has not always been fully synchronised resulting in periods of extreme volatility and dislocation. Cognisance of this is important as further index changes will be experienced during the remainder of 2006.

Fund Details