To produce an attractive level of income together with capital appreciation by investing in a diversified portfolio of fixed and variable rate bond investments, including convertible securities. The fund will vary the currencies in which it invests to enable it to achieve its objective.
Markets were dominated by the deepening of the credit crunch,with corporate bonds becoming cheaper,particularly in subordinated financial issues(those bonds which are paid out immediately after the primary creditors in the event of a corporate failure),following the bankruptcy of Lehman Brothers and the near-collapses of Merrill Lynch,Wachovia and Washington Mutual.This has led to a rally in short-dated bonds and the outperformance of the European government bond markets over US Treasuries.Currency markets were volatile with the only constant theme being the underperformance of the commodity-related currencies. The US dollar ended September on a strong note but it experienced falls in the course of the month following the initial rejection of the financial rescue plan in the US. The Japanese yen has continued to act as a safe haven for investors due to the country's current account surplus.The fund underperformed both its peer group and the benchmark index almost entirely due to being overweight in credit and to the underlying stock selection. Notable losses occurred in our holdings in Lehman, Wachovia and Taylor Woodrow. Performance has also suffered from the exposure to financials and tier one bonds (higher level subordinated bonds) which experienced particular weakness.In contrast, the overweight allocation to long-dated bonds contributed to performance as they benefited from investors' 'flight to quality'. Marginal changes to credit positions included increases of our holdings in diversified non-financial names. Main purchases included 50-year long French government bonds and 10 year gilts.In currencies, we rotated out of an overweight position in the US dollar at the start of the month whilst increasing allocations to the Australian and New Zealand dollars, the Norwegian krone and the Swiss franc. The fund was neutral in the US dollar at the end of the month whilst remaining underweight in the euro. The fund maintains its overweight credit position but steps have been taken to diversify it further.
218.83p
