Fund Objective

The objective of the fund is to provide a regular, above average income through investing in a range of bonds and bond market instruments that meet strict criteria ethically and financially. To meet these objectives, the fund may also invest, at the Manager's discretion, in other transferable securities, money market instruments, warrants, cash and near cash, deposits and units in collective investment schemes.

View on Past Performance

Government bonds benefited from a flight to quality in one of the most tumultuous months for financial markets on record.The UK 10-year gilt started September at 4.48% and ended at 4.45%, as investors shunned risk. September reads like a catalogue of woe.Week one: the FTSE 100 falls 7%; US Government nationalises Freddie Mac and Fannie Mae.Week two: US Government allows a run on Lehman; Merrill Lynch is bought by Bank of America.Week three: US Government pumps $80 billion into AIG for 80% equity; in the UK, Lloyds buys HBOS; the FTSE plunges 9.9% in four days then shoots up 8.8% on the announcement of a $700 billion bail-out bill in the US.Massive liquidity injections, globally, are followed by a short-selling ban on financials in the UK.Morgan Stanley and Goldman Sachs become bank-holding companies; Washington Mutual crumbles.Week four: five banks fail. Citigroup and Well Fargo wrangle over Wachovia; European banks Dexia, Fortis and Glitnir require state aid, and the UK's Bradford & Bingley is part nationalised, part sold to Santander. September ends with the unexpected rejection of the US bail-out plan, followed by a high in volatility.Investors are then partially mollified by Ireland's pledge to underwrite bank deposits, and guarantee debt for two years. Data from the underlying economies remain weak. Trading this month was difficult as liquidity remained scarce. In our opinion, we benefited from our zero exposure to the US, and holding building societies worked against us. On a positive note, a tender was made for bonds in Angel Trains Finance.

Future Expectations

At the time of writing, we believe that the Bank of England will reduce interest rates as UK growth continues to slow markedly. We expect unemployment to remain high, and consumers and cyclical businesses to operate under severe strain. Further capital injections into the banks are likely, with greater gilt issuance putting upward pressure on Government yields.Senior bank debt is likely to benefit from Government intervention; however, we expect subordinated debt to soften as the potential increases for further defaults. A rotation out of corporates into senior financial bonds is likely.

Fund Details