The process is best described as active, value-focussed and fundamentally based. The managers continue to apply macro-economic outlooks for the overlay of currency, overall duration and net credit exposure. Bottom-up analysis of security, issuer and prospectus occurs for all bonds, but most notably in high yield, mortgage, corporate and convertible sub-sectors.
The fund uses 3-month LIBOR EUR as benchmark. The aims of the fund are four-fold: one, make money for clients in all markets, minimise the volatility of the returns, facilitate the redemption process through careful husbandry of liquidity and - wherever possible – create a portfolio that is easy for people to understand.
Performance Review 2005
Tim Haywood & Daniel Sheard: "In 2005, our particular focus on merging markets protected us from the weakness of core markets."
Performance Review 2006
Tim Haywood & Daniel Sheard: "In 2006, that bias came to hurt us a little in the summer: from this point, we adopted a ‘more risks, not more risk’ approach and looked to make more steady, progressive returns commensurate with a low volatility profile."
Performance Review 2007
Tim Haywood & Daniel Sheard: "Our purchase of credit protection on US sub-prime in the summer and autumn of 2006 worked very well in February, July and October when funds suffered horribly."
Performance Review 2008
Tim Haywood & Daniel Sheard: "Capital was preserved until the surge of redemptions in Q4 08. We sold positions across the spectrum in order to preserve a diversified profile, but the bid prices achieved for many cash bonds were dreadful; with the outflows stabilised, we began a process of bargain hunting in the investment grade sector. By the end of this year, we had gross losses of 23bp, just failing, for the first time, to make money for clients every year."
Performance Review 2009
Tim Haywood & Daniel Sheard: "The ‘dash for trash’ and all things credit related helped ups more than recover the previous year’s drawdown. We took a more balanced view for credit from September onwards (in hindsight, this was too early). Greece started to weaken in late Q4 - PIGS became a focus – and we hedged our modest positions with credit protection bought."
Performance Review 2010
Tim Haywood & Daniel Sheard: "The powerful rally from the last 3 quarters of 2009 continued into early 2010. Thereafter, performance was broadly in line with peer group, and the calendar year net result, whilst positive, was not as high as some would like. The ongoing philosophy of ‘buy bonds, buy protection’ – and hedge interest rate risk – worked reasonably well as peripheral European sovereigns, financial sectors widened as gyrations on US Treasury yields associated with quantative easing programs were felt in the last 3 quarters."
Performance Review 2011
Tim Haywood & Daniel Sheard: "2011 started well, with the fund NAV per share rising whilst core bond markets fell. By late spring, however, economic growth dipped somewhat, which was not entirely expected. The markets reaction to this slowdown, and downgrade of US Treasuries, was very surprising, with G4 bond futures rallying hard and many other assets falling to the point of pariah status. The fund dipped through to end of September, a point of maximum market stress. October’s bounce, November’s panic before December’s recovery were all reflected in unit prices. The fund ended the year down 0.86%, which, albeit a small decline, was only the second calendar year decline in its history."
Performance 2012 - Year-to-Date
Tim Haywood & Daniel Sheard: "The problem areas for markets of 2011 – peripheral European bonds and emerging currencies – led the bounce back in YTD 2012. At the same time, G4 bonds have broadly marked time. This market phase is typically one where the fund does well. The increased use of FX options, and added equity protection after the early surge in stock prices, should help minimise future draw-downs. Core government bonds still appear expensive, hence a near-zero duration stance is maintained, yet with high levels of credit protection held."
Performance since 2007
Tim Haywood & Daniel Sheard: "The fund has made significant positive progress over this 5 year period of extreme market volatility, with dramatic periods of spread widening, contraction, re-widening and re-contraction. Further, financial sector and peripheral government have seen horrible price actions. To make strong returns in 2007, when credit spreads were widening and competitor funds began to struggle was pleasing. 2008 saw the first negative net return for a calendar year was disappointing result – mitigated by sub-prime credit protection bought and systematic currency overlay. 2009 saw that small loss more than recovered as pariah bonds became popular again. 2010 and particularly late 2011 were less than entirely pleasing before 2012 YTD recovered to the hitherto strong performance pace."