Fund Objective

The fund aims to maximise total return by investing primarily in a diversified portfolio of fixed, variable and zero rate bond investments, including convertible securities. There are no specific restrictions as to the economic sectors or geographic areas that the scheme may invest in.

View on Past Performance

The relative stability of August evaporated as markets took a sharp turn for the worse,led by the unexpected bankruptcy of Lehman Brothers.Credit spreads(corporate bond yields relative to government bond yields)widened during the month on intensifying concerns over the weakness of the global financial system after the US government's takeover of mortgage underwriters Fannie Mae and Freddie Mac,the sale of Merrill Lynch,the bailout of Wachovia,the rescue of AIG and the demise of Washington MutualMarkets were not helped by the initial rejection of the $700bn US financial rescue plan by Congress. Commodities continued to decline, with the oil price falling further to below $100 a barrel as prospects for global growth continued to deteriorate. In a stormy month the fund ended 10.9% lower as both investment grade and high yield credit indices ended September considerably cheaper, with the investment grade index, which contains banks, performing worse.The impact of the bankruptcy of Lehman Brothers, in which the fund had a position, reverberated throughout the entire market, with all corporate bonds pricing in new levels of uncertainty as market confidence evaporated and several large financial institutions were bailed out. September was a busy month, including the sales of positions in UK housebuilder Taylor Wimpey, mortgage lender Kensington Group, French beverage producer Belvedere and airport operator BAA.We also took profits on Finnish paper producer M-real, which rallied strongly following an impressive asset sale. New positions included Virgin Media and Bayer, both attractively priced, good quality credits with sound liquidity and resilient business profiles.

Future Expectations

We continue to focus on identifying financially sound bonds as we seek to position the fund to weather the rapidly deteriorating economic conditions in the UK and the Eurozone. Current market volatility presents opportunities to take stakes in high quality, cash generative non-cyclical companies at prices never previously encountered.

Fund Details