Fund Objective

An actively managed 'all maturities' fund investing in UK government issued bonds.

View on Past Performance

The Fund returned -1.1% for the quarter which was in line of its comparable benchmark index. UK gilt yields rose over the period in sympathy with international bond markets as expectations moved from a neutral position on base rates to a bias towards a rise at some point during the remainder of 2006.Despite bouts to rapid steepening and flattening (mostly technical around index changes dates) the yield curve broadly rose in parallel fashion; 10 to 30 year element flattening by only 6 basis points.The Fund continued to be short of benchmark duration over the quarter based on the expectation that any weakness in international markets would be felt in longer dated issues (as the UK is forced to compete for a diminishing pool of liquidity).While the portfolio benefited from its short duration bias, the more aggressive interest rate profile that began to be priced into the market impacted on the benign bias and overall performance was trimmed back to index return.

Future Expectations

Strategy reflects the view that UK interest rates are unlikely to rise chiefly based on the view that wage cost pressure is very limited. Consequently the portfolio remains overweight the short end of the yield curve and underweight longer dated maturities.

Fund Details