Fund Objective

The Fund's investment objective is to provide capital growth and income.

View on Past Performance

The fund was invested in a cautious manner with an underweight duration position. This strategy was expressed in both 10-year gilts as well as in the very short maturities in the euro bond market (euribor futures), and added to performance over the quarter. We also hold a yield curveflattening strategy in gilts, but this was neutral over the quarter as the yield curve remained stable. We hold a few highly-rated corporate bonds in the portfolio - also neutral in terms of performance. The fund benefited, however, from adding an overweight position in index-linked gilts.Economic growth remains stronger than expected in Britain and we believe that the Bank of England will continue to increase interest rates. Our economists have revised their forecast for the peak in base rates to 6%. In addition, global growth is very healthy and the US economy has not slowed as earlier feared.As this level of interest rates has, at current levels, been discounted, we have now taken profit on our underweight duration position. However, our bias is still cautious and we are looking to take the fund underweight again at more advantageous levels. We favour the longer maturities as we continue to expect demand from pension funds in this segment of the market.

Future Expectations

Our cautious stance is not only supported by our Growth and Inflation Press models (GrIP), but our real yield models also points to higher yields and lower gilt prices. Finally, rallying equity markets, increasing housing prices and higher commodity prices paint a picture in which indexlinked bonds are attractive given their defensive nature.

Fund Details