Fund Objective

The fund seeks to achieve a total return by investing predominantly in fixed income markets.

View on Past Performance

A mixed performance. Peripheral European bonds performed well. Gilts and US Treasuries posted slightly negative returns. Emerging-market bonds, however, fell sharply.Financial bonds continued their good run in November. Investment-grade credit generally fell, however, following weakness in government bond markets.Another positive month, but with a little more polarisation between the best and the worst performers. Although issuance was generally pretty strong, some deals (such as one by Dollar Financial, a payday lender) were pulled despite the attractive coupons on offer.In November, we deployed new cashflow in a number of new holdings: American Movil, Barclays (AT1 junior bonds), Nationwide (CCDS, junior bonds), Univeg and Vivacom. The percentage of the fund invested in high-yield drifted a little higher as a result. We have also invested a small position in US index-linked Treasuries (TIPS). This may grow should yields rise further.

Future Expectations

A position in US index-linked is a new holding for the fund. We feel a real yield of 1.6% is comparatively attractive. Interest rates are going to stay low for a long time, so this yield stood out, especially as the yield was 0.4% just six months ago. That compares with a similar UK bond yield of less than 0.1%. One of these bonds is clearly mispriced; we think the US is too cheap.Meanwhile, the market seems set fair at the moment. Default rates are likely to stay low for a while, which will support high-yield bonds. Investment-grade issuance is strong and will continue to be strong while interest rates remain low. However, we still expect yields on government bonds to rise over the next few months as tapering continues - hence our policy of keeping the fund's duration fairly low.Financials are rehabilitating themselves and will remain a core part of the portfolio. For now, though, we remain alert to signs of this trade having run its course.

Fund Details