Fund Objective

The objective of the Fund is to maximise total return regardless of market conditions.

View on Past Performance

Against such a tumultuous background, the UK economy continued to deteriorate. House prices fell sharply in the second quarter while unemployment, repossessions and credit delinquencies rose. The manufacturing sector in September suffered its biggest drop in output since records began in the early 1990s while the British Retail Consortium (BRC) highlighted the dire state of the high street.Despite the bleak outlook for the economy, and even though LIBOR rates were 130 basis points over base rates the MPC resisted call to lower borrowing costs, citing inflationary concerns.Ten year gilts yields fell by 70 basis points to 4.40% during the quarter while 2 year yield fell by more than 80 bps to 4%, reflecting the expectations that the MPC will be forced to cut rates sharply over the coming months.

Future Expectations

As at the start of October global economic prospects seem poor. The delays over the passing of the US Federal bail out package have wiped out a lot of the positive potential impact. Despite being passed by the US Senate, equity markets fell by 4% the following day.Fear in the banking industry remains at record levels. Their unwillingness to lend to each other (see graph) is worrying considering the amount of help governments have given them. Until we see some normality returning to bank lending we remain positive on bond markets.Three months ago, we could not see high headline inflation feeding through into core inflation. We certainly do not consider inflation a problem in the current climate. As inflation falls over the next 12 months, bond valuations will offer further value.The MPC will cut rates before year end and we expect them to cut by at least 100 bps over coming months. As such, our core view of further steepening in global yield.

Fund Details