Fixed incomeAfter a period of bonds and equities being positively correlated with each other (i.e. broadly moving in thesame direction at the same time), we are pleased to see this revert to its more traditional pattern of bondsbeing a strong diversi昀椀er to equities. This is very helpful to a diversi昀椀ed, multi-asset portfolio.Unlike some peers who focus their 昀椀xed income portfolios wholly or largely in UK bonds, your fund’s 昀椀xedincome portfolio is globally diversi昀椀ed and allocated across multiple areas where we observe attractive riskreward. This approach has been highly bene昀椀cial and enabled us to sidestep market speci昀椀c issues such as the“Liz Truss budget” that so badly impacted the UK bond market in 2022. One speci昀椀c opportunity we identi昀椀edback in 2020 was in high quality Chinese government bonds. With the Chinese economy suffering from adamaging property crisis and de昀氀ation setting in, we felt interest rates would inevitably have to fall, resultingin higher demand and higher prices for Chinese government bonds. This has been a highly pro昀椀table move assince we initially invested in July 2020, the position has returned approximately +18% with very low volatilityand has been totally uncorrelated to everything else in the portfolios. However, we are now revisiting thispositioning as, although China’s economy remains in the doldrums, a prolonged or dramatic stimulus packageby Chinese authorities could reverse the trend of lower interest rates as investors become more enthusiasticabout other Chinese asset classes. While we think there remain good return opportunities in many othersegments of global bond markets, we want to make sure we are being amply compensated for any risks.Pg 6
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