Fund commentary

Market Review
In March, US corporate bonds were strong, but European credit retraced its entire intra-month rally as peripheral European bond markets began to widen. Government bond yields were broadly higher on the back of resilient economic data. The exception was Germany, where yields remained close to all-time lows.

Fund Performance
Our rate strategy, particularly duration and cross market positions, added to performance in March. Core portfolio performance was driven by short maturity financials and select new issues, while our active FX strategy also made a positive contribution. Credit performance was boosted by our CDS hedges.

Fund Positioning
We continue to reduce risk in credit, and have cut many of our short duration positions in bond markets. We added to our iTraxx Xover protection mid-month, more than fully offsetting our high yield exposure. We continue to hold protection in cyclical individual names such as Xstrata, Akzo Nobel, Holcim and BMW.