September was a tumultuous time for global financial markets. Shock waves followed the collapse of Lehman Brothers, the takeover of Merrill Lynch by Bank of America and the government bail-out of insurance giant AIG.Similar problems in Europe saw Bradford & Bingley bought by the UK government and the Benelux countries moved to bail out Fortis. Any one of these events on its own would have been a significant event for credit markets.It was a very poor month for corporate bonds. The fund underperformed the benchmark mainly owing to overweight positions in financials buffeted by market events, particularly holdings of sub paper in Lehman Brothers and AIG, which proved negative in light of the events outlined above.The fund participated in the purchase of new issues from Nordea, Tesco, Imperial Tobacco and KPN early in September with the aim of being invested in more defensive names. The fund reduced its position in Glencore as part of a strategy to reduce investment in more cyclical issues.The fund remains overweight financials and underweight more cyclical corporates. This positioning has underperformed, but government action to support banks should benefit the fund.
111.94p
