Fund Objective

To provide income with the prospect of capital growth.The Fund is hedged back into sterling.

View on Past Performance

US yields rose aggressively on inflation concerns and evidence of strengthening growth. Euro zone yields underperformed US equivalents amid higher growth expectations for 2007 and 2008, while the ECB continued to tighten monetary policy. JGB yield gains kept pace as investors brought forward expectations for a rise in Japanese interest rates amid signs of stabilising growth and continued yen weakness.A key contributor to the fund's performance was our short US duration bias, at the frontend of the curve and in 30yr mortgages. Currency exposure also contributed positively to the fund's performance. In contrast, our JP 2yrvs. 10yr yield curve flattener detracted from performance. In cross country trades, the long Poland vs. Europe position underperformed while the short Italy vs. Core Europe contributed strongly.

Future Expectations

In the US, slowing domestic consumption could constrain the rise in yields despite strong global growth. Demand from central banks globally for US Treasury Bonds should also moderate. In the Euro zone, we see some upward pressure across the curve as measures of monetary growth remain elevated and the economy shows many signs of strength.Further increases to EU rates are however likely to be limited. In Japan, we see one or possibly two more rate increases after the July upper house elections and eventually some modest upward pressure on JGB yields.

Fund Details