Fund Objective

This fund is designed primarily to provide investors with a high level of income.

View on Past Performance

At the end of September, the Fund underperformed its sector average over three months. However, over the longer-term, the Fund was ranked in the fi rst quartile over four and fi ve years. Corporate bonds performed very poorly in September, as a virtual collapse in market liquidity and multiple failures in the global banking sector caused the difference ("spread") between corporate and government bond yields to increase sharply.Yield spreads in the sterling investment grade bond market increased to record highs while, in high yield markets, spreads tested levels not seen since the ending of the dot-com bubble. We invested in an attractively priced new bond issue from Imperial Tobacco during September, before selling our position profi tably later in the month.Elsewhere, we closed the Fund's short position in Tate & Lyle (after the company lost a patent case in the US) in the process crystallising good gains, and started a new position in attractively valued HSBC bonds. During this period of unprecedented volatility and poor liquidity, we have been working closely with our third-party administrators to ensure that the bonds in the portfolio are accurately valued.Clearly, our decision to raise the Fund's exposure to investment grade fi nancials during the summer has proven premature and this has damaged performance, particularly during September. However, high levels of investor risk aversion and a lack of market liquidity have conspired to depress corporate bond valuations to extremely low levels.

Future Expectations

Unlike equities, corporate bonds will - provided the borrower doesn't default - deliver fi xed returns if held to maturity. While we remain cautious and very conservatively positioned in the industrials and consumer cyclical sectors and particularly wary about the prospects for long-dated, highly leveraged and deeply subordinated corporate debt as the global economy slows, we believe that there is now scope for very attractive returns from the asset class over the medium-term.

Fund Details