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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 30 September 2015
M
arkets in the third quarter were
volatile as economic developments
in China, and the run-up to a possible rise in
US interest rates, unsettled investors. Data
in China had been suggesting that economic
growth was slowing rapidly, with electricity
consumption declining. Its authorities
responded by letting the currency decline
against the US dollar.Thin summer markets
accentuated falls in equity markets; this
uncertainty was a key factor in the Federal
Reserve’s decision not to raise rates.
During the quarter the holdings of Royal
Dutch Shell and Conviviality Retail were
increased. The fall in commodity prices
has badly a ected the prices of the large oil
and mining companies.The fund has been
underweight in this area, which has helped
performance. Exposure to UK consumer
stocks was reduced, with some pro ts being
taken in both Pendragon and ToppsTiles.
In the period the fund bene ted from
agreed takeovers of both HellermannTyton
and Latchways at substantial premiums.
This is a feature that we expect to continue.
US interest rates are likely to be
increased unless the economy deteriorates,
and this also applies to the UK.The absence
of signi cant in ationary pressures means
that any rises are likely to be modest and
well spaced out.While there has been
a pick-up in dividend cuts in the market,
there are plenty of opportunities to access
attractive yield in the equity market.
T
he third quarter of 2015 saw increased
volatility across all markets as a result
of concerns over Chinese growth, global
disin ationary pressure and continued
declining commodity prices. Q2 earnings
were generally positive, led by European
equities bene ting from a weak euro and
continued growth.A bailout was nally
agreed between Greece and its creditors
and through July volatility remained
inconsistently low as credit spreads widened.
Measures implemented by Chinese
authorities had limited impact, leading to
a correction in equities at the end of
August a ecting all markets, with theVIX
volatility index spiking to its highest since
the global nancial crisis.
Developed markets recovered somewhat
on the back of solid economic data,
suggesting there is adequate economic
momentum to weather the China
slowdown. Emerging markets, notably
commodity exporters, continue to su er
contagion. Bonds improved marginally
on their poor performance through Q2.
Despite initially dipping as equity volatility
spiked, they remained relatively contained.
In ation expectations hit an eight-month
low and solid economic data from Europe
stabilised real rates.The Federal Reserve’s
ongoing considerations on when to raise
interest rates may have an impact into Q4.
Clean Energy and Emerging Market
Infrastructure detracted most from
returns, while Investment Grade debt
contributed positively.
George Luckraft
Zak Summerscale
BlackRock Market Advantage Team
T
he third quarter of 2015 got o to an
unsettled start as global high-yield bond
markets came under pressure.Volatility in
global stock markets and an ongoing decline
in commodity prices continued to a ect global
capital markets.While the negative news from
Chinese equity markets and the downward
pressure on US energy names tempered
investor con dence, the easing situation in
Greece, along with a more hawkish narrative
from the US Federal Reserve, helped
improve investor con dence.
August saw the near-term uncertainties
around China and global commodities
continue to weigh on markets, equities
in particular, which pushed the volatility
index to a four-year high. Despite this
environment, the global senior secured bond
market held up well when compared to
broader risk-seeking asset classes.
September maintained the volatile path,
with global senior secured bonds rising
initially before succumbing to selling pressure.
From a fundamental perspective, the
latest earnings reports from our portfolio
of companies continue to provide assurance
that corporate health remains strong, with
the exception of some commodity-related
names.The fund is well positioned in the
current macro environment and maintains
an attractive running yield.We believe we
will continue to o er investors robust risk-
adjusted returns.
BABSON CAPITAL
International Corporate Bond
Corporate health away from the
commodities market remains strong
BLACKROCK
Alternative Assets
Investment Grade debt has
provided solid returns during Q3
AXA INVESTMENT
MANAGERS
Diversified Income
Allshare Income
The fund has benefited from
agreed takeovers at high premiums
Global senior secured
bonds heldupwell
throughvolatility
Performance in
developedmarkets is
cause for optimism
Thinmarkets over the
summer accentuated
falls in equitymarkets
