Market Review
UK government bond yields continued to fall in December, their sixth consecutive monthly decline. The 10-year Gilt yield fell from 2.31% to 1.98% during the month. The primary cause was the continuing turmoil in the eurozone, leading investors to plump for Gilts as a safe haven.
Fund Performance
Our short duration position cost the Fund although this was offset by a positive impact from our positioning along the curve with our short duration position at the long end of the curve adding to performance. Our allocation to corporate bonds added to performance with our Lloyds 6.3% holding performing strongly.
Fund Positioning
Trading was extremely light in December. The Fund remains overweight in 25-year Gilts at the expense of 10-year bonds and ultra-long-dated Gilts. The Fund has maintained its holding in Japanese index-linked bonds.
Graeme Caughey
31 December 2011