Fund Objective

The Premier High Income Bond Fund aims to maximise income, with capital appreciation being of secondary importance.

View on Past Performance

Mortgage approvals continue to fall and house prices gather downward momentum, having fallen more than 10% so far this year. Credit conditions have worsened with sterling three month LIBOR rates rising 200 basis points over the risk free rate as access to funding has dried up. This tightening of credit conditions and increased risk aversion has contributed to a sharp widening in credit spreads of corporate bonds to over 300 basis points, a 20 year high.However in recent weeks LIBOR has started to tighten following government intervention and this should prove to be the turning point for money markets and bonds. Further deleveraging could see bond prices even lower despite the current cheap levels; any move wider in credit spreads will be a bargain for any medium-term investor.With the instability in the financial system we witnessed global government intervention; Fannie Mae and Freddie Mac being taken into conservatorship in early September; bail out scheme for banks unveiled in the US ,UK and across Europe; AIG, Hypo Real Estate, Bradford and Bingley, Fortis and many other institution's being rescued by their various governments; and a coordinated interest rate cut of 50 basis points by the major central banks excluding Japan.The Fund, over the quarter, fell 8.56% slightly underperforming the IMA Sterling High Yield sector which fell 5.68% whilst outperforming the Merrill Lynch Euro High Yield Index which fell 10.54%. Over the same period the FTSE 100 fell 12% 4902 as equity markets continued to weaken in part caused by forced selling by hedge funds and insurers.

Future Expectations

The Fund's credit and equity risk profile has increased during the last couple of quarters, especially in financials. We feel that despite the current volatility, corporate yields will provide attractive and more importantly absolute returns as compared to other asset classes over the next few years. Importantly the Fund's underlying holdings remain predominantly liquid for a high yield fund and therefore retains the flexibility to change posture as the global financial crisis unwinds.

Fund Details