Fund Objective

The Fund aims for composite returns of above average income together with capital preservation over the long term.

View on Past Performance

The Fund has continued to outperform the peer group average and market index over the last 12 months (see table on page 4). This strong performance has helped it to achieve top quartile position within its peer group over the reporting period.It is very important to underline the fact that this outperformance has been achieved whilst also generating a portfolio running yield of around 7%, placing the Fund amongst the highest yielding within its peer group.In terms of maturity, there remains little premium for the investor at the long end of the yield curve, with returns distorted temporarily by supply and demand imbalances and investor appetite for higher risk. We have therefore maintained the modified duration of the portfolio at just under 5 years (long dated and low coupon bonds exhibit greater price sensitivity to interest rate changes).Although, the capital value of the Fund fell marginally, the high income yield has helped to provide a strong positive total return over the year.

Future Expectations

The fundamental outlook for corporate bonds remains benign, but there is increasing evidence that corporate earnings, default rates, economic growth and the credit cycle have peaked with increasing M&A activity elevating levels of event risk across the market. Therefore, we believe that spreads offer little upside, while the prospect of downside risk will increase commensurate to changing corporate, economic and market conditions. We have, therefore, taken a more pragmatic approach and favour deleveraging corporates in the non-cyclical sectors and securities that have strong yield and low price volatility characteristics. In addition, we may take further strategic US Dollar positions within the 20% foreign currency limit if suitably attractive opportunities arise.

Fund Details