Fund Objective

To achieve a high income with capital growth prospects.Investment will be predominantly in UK corporate bonds and UK government and other public securities and other fixed-income securities anywhere in the world.

View on Past Performance

Most fixed income markets other than governments and agencies were negatively impacted by the events of the quarter. The underperforming allocation of the fund can be split between exposure to investment grade corporates and exposure to asset backed and mortgage backed securities.Liquidity of these markets has been poor for some time, yet there has been a significant change since the Lehman default in September, with spreads widening further and liquidity remaining difficult to achieve. Our overlay strategy performed well, as yield curves steepened in response to expectations of rate cuts at the front end and of issuance to fund the various support programmes and to cover potentially lower central government tax receipts.Our strategy benefited from overweight positions at the front end of the UK and Japanese markets and a long 10-year UK/EU cross-market exposure in futures. However, the short 5-year US/EU cross-market exposure detracted from returns, as the US underperformed Europe.

Future Expectations

A deeper and more protracted slowdown in global growth is likely to reemerge as the dominant theme for investors in the medium term. The growth outlook has deteriorated on a relative basis, implying that the scope for monetary easing has increased. The outlook for credit remains poor.The current deleveraging, illiquidity in the system and mark to market volatility are confidence sapping and investors continue to sit on the sidelines, building up cash positions. Likely catalysts for an improvement will be time, improving Libor rates, stabilisation of house prices and signs of economic recovery.

Fund Details