Market Review
For the past three months, UK government bonds followed the same pattern, a sell-off followed by a rally that retraces most of the lost ground. The eurozone's troubles have enticed investors into safe havens such as UK gilts. Countering this, any improvement in investor risk appetite has exerted downward pressure on prices.
Fund Performance
The Fund underperformed the sector average during the first quarter with negative contribution from yield curve where our underweight duration position detracted from performance. Allocation to index-linked government bonds and corporate bonds contributed to performance as these asset classes outperformed.
Fund Positioning
The Fund was positioned with a mildly short duration throughout the review period, and with a yield-flattening bias. In terms of curve positioning, the Fund was overweight in 25-year Gilts at the expense of 10-year bonds and ultra long-dated Gilts.
Graeme Caughey
31 March 2012