Market Review
Corporate bonds enjoyed a strong first quarter. A rally in risk assets was driven by a variety of positive factors, notably the two long-term refinancing operations carried out by the European Central Bank. These boosted confidence and put a floor under the prices of corporate bonds issued by the financial sector.
Fund Performance
Our underweight position in UK government bonds and overweight in UK corporate bonds benefited the Fund as the credit market started the year strongly. Our short duration position also boosted performance as yields moved upwards. Security selection in our credit portfolio, and financials in particular, was also positive.
Fund Positioning
We maintained the Fund's overweight positions in index-linked bonds and corporate bonds, which represent much better value than their government equivalents. We reduced exposure to banks with sales of Royal Bank of Scotland, UBS and Barclays. Purchases included a new issue from Morrisons, the UK supermarket group.
Graeme Caughey
31 March 2012