Fund Objective

The Fund's investment objective is to provide capital growth and income.

View on Past Performance

The fund outperformed its benchmark over the quarter but the total return was negative as the sterling bond market continued to sell off. Performance benefited from our short duration stance, continuing from the previous two quarters. This was expressed both through gilt futures as well as Euro Libor (Euribor) futures.The fund also benefited from the allocation to lower-rated corporate bonds. In addition, security selection in lower-rated financials and hybrid securities worked well. Out-of-benchmark country positions made a marginal contribution as the fund benefited from the Hungarian bond market's strong performance.

Future Expectations

In terms of corporate bonds, the long-term trend of this asset class outperforming gilts has come to an end - but valuations are not reflecting this. We are underweight credit beta by one year. The fund is also overweight covenant bonds which protect bond holders from change in company control and therefore reduces the leverage buy out risk in the portfolio.We expect the Bank of England to continue to increase interest rates. Our economics team has revised its forecast for the peak in base rates to 6%. As this level of interest rates has, at current levels, been discounted, we have now taken profit on our underweight duration position. However, our bias is still cautious and we are looking to take the fund underweight again at moreadvantageous levels. We favour the longer maturities as we continue to expect demand from pension funds in this segment of the market. Finally, rallying equity markets, increasing housing prices and higher commodity prices paint a picture in which index-linked bonds are attractive given their defensive nature.

Fund Details