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THE INVESTOR
A
t the headline index level, equity
markets were quiet with small overall
moves.This concealed a large change in
market leadership with the mega-cap
shares rising while the broader market
underperformed. Unrest in Ukraine and
the Middle East caused the oil price to
rise with the possibility that further
deterioration could cause a spike that
could damage economic growth.The UK
economy saw further con rmation that the
economic recovery was well ensconced,
causing the Bank of England to warn
that interest rate rises could be brought
forward.The quarter saw P zer’s failed
approach forAstraZeneca and we took a
position in the latter following failure of
the deal. New holdings were acquired in
Jupiter Fund Management and ITV. In the
new-issue market, holdings were acquired
in Fair Oaks Income Fund, Game Digital,
NAHL Group, NextEnergy Solar, P2P
Global Investments and Shoe Zone, all
of which o er high prospective yields.
The holdings of BT, NationwideAccident
Repair Services and Stadium Group were
sold, while the positions in Rede ne and
Rio Tinto were reduced.The overall
volatility of the market is at very low levels,
which is often followed by some large
moves in the market.
T
he second quarter began with
equities lagging and commodities,
investment-grade debt and government
bonds delivering strong performance.
During May, as economic data in the US
improved and geopolitical tensions between
Russia and Ukraine eased somewhat,
equity markets rallied.At the start of June,
renewed fears of earlier than anticipated
rate hikes resulted in negative returns for
US Treasuries. US GDP growth of -1% in
the rst quarter was largely shrugged o by
the market due to weather distortions. In
Europe, disappointing GDP numbers and
in ation remaining well below target led
the European Central Bank to cut interest
rates further, imposing negative rates on
overnight deposits, while economic activity
indicators in the region remained lacklustre,
driving support for German Bunds. In the
UK, the Bank of England also maintained
dovish policy by keeping interest rates
unchanged despite stronger economic
data, with some members noting the risk
of nancial imbalances, particularly in the
housing market. In emerging markets,
Chinese economic activity indicators
positively surprised investors after recent
fears of a slowdown, driving emerging
equity markets higher. In terms of positive
contributors to fund performance during
the period, emerging market infrastructure
and debt exposures delivered strong
returns, with global property also gaining.
Investment-grade and high-yield debt
bene ted from the increased likelihood of
an extended period of easy monetary policy
inApril.
George Luckraft
Zak Summerscale
BlackRock Market Advantage Team
THE INVESTOR CENTRE
T
he International Corporate Bond
fund continued to perform well in
the second quarter of 2014. Longer-
duration assets rallied while solid credit
fundamentals and benign event risk
created an environment for senior secured
bonds to perform well.April saw a slight
bump up in the US default rate due to the
long-expected and well- agged default of
Energy Future Holdings, which the fund
was not exposed to. Excluding this event,
the overall market default rate remains
very low.We continue to be able to invest
in our favoured pro le of robust, cash- ow
generative companies and maintain a well-
diversi ed portfolio, while holding more
concentrated positions in our conviction
names. Both the US and European high-
yield bond markets performed well in the
second quarter, and the announcement in
June by the European Central Bank to cut
rates to record-low levels further boosted
the performance of European high yield.
High-yield issuance in 2014 has shown
signi cant strength.This allowed us to
continue to selectively participate in the
primary market, where we are able to
purchase positions that enhance the fund’s
performance.We believe the diversi cation
within the portfolio, combined with our
strong credit discipline and the attractive
yields on o er, will continue to deliver
healthy risk-adjusted returns to investors.
BABSON CAPITAL
International Corporate Bond
Diversification will continue to deliver
healthy risk-adjusted returns
BLACKROCK
Alternative Assets
Economic activity indicators in
Europe remained lacklustre
AXA FRAMLINGTON
Diversified Income
Allshare Income
Quiet equity performance concealed a
large change in market leadership
April sawa slight
bumpup in the
US default rate
Chinese economic
activity indicators
surprised investors
The overall volatility
of themarket is at
very low levels
All information correct as at 30 June 2014
