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THE INVESTOR
T
he most signi cant development during
the quarter was a large fall in
commodity prices and in particular oil.
It became clear that OPEC was not
committed to defending any price target.
This weakness threatened to help tip
Europe into de ation as poor economic
growth reduced any in ationary pressures.
As a result expectations have been growing
that the European Central Bank will
embark on full-scale quantitative easing
(QE) early in 2015. Equity markets were
weak in the early part of the quarter before
recovering as Japan surprised investors by
expanding its QE programme markedly.An
underweight position in commodity-related
stocks helped performance – which was
o set by an underweight position in
large-cap global defensive stocks, which
continued to perform well despite being
expensive on historic criteria. During the
quarter, new positions were taken in
Ediston Property, Entu and Quantum
Pharma.The holdings inAshtead and Micro
Focus were reduced.The May general
election will be at the centre of investors’
attention with a great deal of uncertainty as
to the outcome. Markets dislike
uncertainty, meaning that volatility is to be
expected. Corporate balance sheets are in
the main strong, which should be
supportive to dividend payments.
D
uring the fourth quarter, volatility
returned to nancial markets, with a
short but intense sell-o across markets in
October, followed by a sharp decline in oil
prices through November and December.
In the US, the unemployment rate has
fallen and indicators continue to improve.
In contrast, European in ation slipped
as energy costs fell, and the European
Commission cut its eurozone growth
forecast for 2014. European talk is of
broad-based quantitative easing early this
year. Fresh fears of a Greek exit from the
eurozone resurfaced in December with
calls for a snap presidential election and
comments on debt sustainability. In the UK,
although unemployment dropped to 6%
and indicators con rmed a solid recovery,
persistently low in ation led the Bank of
England to keep interest rates unchanged.
Japanese Q3 GDP fell 1.6%, putting the
country back into recession. Chinese data
deteriorated; in response, the People’s Bank
of China cut interest rates by 0.4%. Falling
oil prices meant poor performance from
LatinAmerican equities and Russian and
other markets, with a crisis for the ruble.
Most assets delivered positive contributions
to fund performance during the quarter.
Key contributors were in ation-linked
and investment grade corporate bond
exposures, but property and developed
equity sector exposures also delivered
strong gains. Both commodities and clean
energy equities detracted from returns
during the period.
George Luckraft
Zak Summerscale
BlackRock Market Advantage Team
THE INVESTOR CENTRE
T
he International Corporate Bond fund
has continued to provide investors with
attractive yields from a diversi ed portfolio
of solid credits, against a backdrop of market
volatility, during the fourth quarter. Recent
world developments have had a mixed
impact on the high-yield market. Notable
events include dramatic moves in the price
of oil, the Bank of Japan expanding its asset-
purchase programme and the European
Central Bank strongly hinting of more
aggressive action. However, with stable
corporate fundamentals, supportive market
technicals and benign default rates, global
senior secured bonds continue to provide
an attractive investment opportunity.The
high-yield asset class has seen substantial
new issuance in both Europe and the US
over 2014 with Europe posting a year-to-
date record of approximately €33 billion
in senior secured bonds, making up 46%
of the European high-yield bond primary
market. In comparison, the gure for the US
high-yield bond primary market was around
$307 billion, with 20% comprising senior
secured bonds.This has enabled the fund to
selectively participate in the most attractive
deals coming to the market, a trend which
we expect to continue into 2015.We believe
the recent market volatility may o er
attractive buying opportunities. Combining
these with our existing positioning of the
portfolio means the fund should continue
to provide a robust source of attractive risk-
adjusted returns for investors.
BABSON CAPITAL
International Corporate Bond
Attractive investor opportunity from
stable corporate fundamentals
BLACKROCK
Alternative Assets
Indicators confirm a solid recovery in
UK, yet BoE cautious about rate rise
AXA FRAMLINGTON
Diversified Income
Allshare Income
Volatility expected as markets react
to uncertainty of outcome
Notable events include
dramaticmoves in
the price of oil
European talk is
of broad-based
quantitative easing
The general election
will be at the centre of
investors’ attention
All information correct as at 31 December 2014
