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THE INVESTOR
M
arkets and currencies were volatile
during the third quarter with little
overall movements. Further disappointing
economic data in Europe, which was partly
due to uncertainties in Ukraine, caused the
European Central Bank to provide further
support with the intention of weakening
the euro. Sterling wobbled in the run-up to
the Scottish referendum as polls suggested
that the‘Yes’ vote might prevail.There
was further corporate activity in the
pharmaceutical sector with a bid for Shire
fromAbbVie of the US.As the quarter
ended there were moves from legislators in
the US to try to restrict the tax bene ts of
cross-Atlantic mergers.A lack of a holding
in Shire was detrimental to performance.
In contrast, having no holding in the food
retail sector, especially avoiding the troubles
of its leader,Tesco, was bene cial to relative
performance. New purchases were made in
Blackstone/GSO Loan Financing, Epwin
and SQNAsset Finance, while the holding
of Primary Health Properties was sold.The
run-up to the general election next May has
the capacity to generate further volatility in
the value of sterling. Possible interest rises
in both or either the US and/or the UK
could cause uncertainty in markets. In
contrast, an increasing volume of takeover
activity provides support. In the absence of
shocks, the portfolio should produce a
rising level of income.
D
uring the third quarter, divergence
between US and European economic
data became more pronounced, while news
ow continued to focus on geopolitical
tensions. In the US, data continued to
improve, fuelling increasing expectations
of a reduction in monetary stimulus.
Consumer con dence, manufacturing
and industrial production all increased
during the period, while US GDP
rose to 4% annualised, beating market
expectations. In contrast, the European
Central Bank acknowledged worsening
economic conditions duringAugust before
unexpectedly cutting interest rates and
announcing new stimulus measures at
the start of September. European data
deteriorated further during the period.
In the UK the focus was on the Scottish
independence referendum, as polls initially
showed an increase in support for the
‘Yes’ campaign.The nal outcome, in
favour of Scotland remaining a part of
the United Kingdom, revealed a notably
high voter turnout of 85%. UK economic
data continued to improve during the
period, with rising in ation and falling
unemployment, although gains slowed
somewhat duringAugust. In emerging
markets, weaker-than-expected Chinese
data weighed on sentiment, as industrial
production and economic activity indicators
fell. In terms of positive contributors to
performance, UK in ation-linked debt
and investment-grade xed income
bene ted from the increasing demand for
safe-haven assets.
George Luckraft
Zak Summerscale
BlackRock Market Advantage Team
THE INVESTOR CENTRE
V
olatility returned to nancial markets
in the third quarter as geopolitical
tensions captured headlines.This a ected
the global high-yield market; and while the
portfolio did not escape pricing pressure,
global senior secured bonds did provide
some insulation from the more pronounced
market moves. July delivered the sharpest
rise in yields seen since spring 2013; a
strong corporate earnings season again
underpins healthy fundamentals.Against
the backdrop, in the latter half of August, of
ongoing heavy M&A activity, a continued
recovery in the US, improvements in
Chinese economic data, easing geopolitical
tensions and alleviated US rate concerns,
the senior secured bond market ended the
month on a rmer footing.The speculation
surrounding European Central Bank action
in an environment of subdued growth and
low in ation also positively impacted the
senior secured bond market and wider
risk asset classes. US high-yield bonds
have outperformed European high-yield
bonds thus far during the quarter, with
neither region immune from broader
market volatility.Although we saw the usual
seasonal slowdown in primary issuance
duringAugust, issuance in September so
far is strong.As we move into the fourth
quarter we believe the primary market,
combined with selective secondary market
opportunities, will continue to deliver
attractive opportunities.
BABSON CAPITAL
International Corporate Bond
Firmer footing for senior secured bond
market during volatile period
BLACKROCK
Alternative Assets
Falling unemployment and rising
inflation bucks European deterioration
AXA FRAMLINGTON
Diversified Income
Allshare Income
Run-up to general election could
generate further volatility
Julydelivered the
sharpest rise inyields
seen since spring 2013
UKeconomic data
continued to improve
during the period
Sterlingwobbled in
the run-up to the
Scottish referendum
All information correct as at 30 September 2014
