Market Review
After a strong first quarter, corporate bonds moved lower in April. Financials were the biggest fallers. While sterling bonds underperformed their euro-denominated counterparts, the beneficial effect of the European Central Bank's long-term refinancing operation on the latter appeared to be waning. Higher-yielding credit was largely unchanged.
Fund Performance
Our rate strategy had a positive effect on performance, with a short position in Italian bond futures contributing significantly. Core credit performed well, particularly short-term financials, as did our active FX strategy. Credit default swap hedges added to performance, while our 10/30 flattener in UK bonds detracted.
Fund Positioning
We added to the holding in Everything Everywhere, the France Telecom/Deutsche Telekom joint venture, and sold BT in favour of France Telecom. We sold a senior unsecured bond issued by Tesco in favour of a longer-dated asset-backed bond from the same company. The Fund was positioned with a short duration in April.
James Carver
30 April 2012