Fund Objective

A high, regular income together with long-term preservation of capital value,although capital growth should not be expected.

View on Past Performance

The BlackRock High Income Bond Fund fell by 3.7% during the quarter, but outperformed the associated ML Sterling Corporate (net) benchmark, which fell 4.2%. The evolution of the liquidity crisis into a solvency crisis has resulted in severe price deflation in credit markets. The financial sector was worst hit and cash hoarding by banks pushed borrowing costs to record highs.The lack of access to short-term capital pushed UK lender HBOS into a merger with Lloyds TSB, and embattled lender Bradford & Bingley into nationalisation. Rising unemployment, a housing market in freefall and a banking system grappling with solvency issues saw short-dated Gilts rally sharply, as markets anticipated interest rate cuts by the Bank of England by year-end.Our overall defensive positioning in credit, relative to the peer group, added to comparative performance, while our underweight exposure to financial sector holdings also helped. Our preference for exposure to Europe relative to the UK was also a positive with respect to performance.

Future Expectations

We continue to look to selectively add fundamentally sound financial names, as industrials will likely weaken to reflect the threat to profits stemming from economic weakness. We retain a modest preference for European bonds, relative to UK, on a currency-hedged basis.

Fund Details