The past three weeks have seen a further significant shift in rates, particularly in the US, where the long bond yield has now risen to 2.4% (up from 1.65% at the turn of the year).
Ten-year rates have also moved up smartly, putting pressure on central banks worldwide, which continue to hold the line on rock bottom short-term rates. The Federal Reserve’s policy and outlook statement takes on greater significance again, though, following recent statements from Governor Powell, they are not expected to move to any sort of tightening of policy.
UK rates have moved up again, though not as sharply as in America, European rates are steady at the higher levels established in February as the ECB has come out more explicitly targeting lower rates further along the yield curve. Mostly stock markets have picked-up but are churning below the surface with inter-sector shifts between ‘growth’ and ‘value’. With some notable exceptions (e.g. UK banks), it feels that most of the shift may well have taken place now.
The balance of the Fund’s asset allocation has shifted by a few percentage points over the three weeks with activity in a number of areas of the portfolio. The table shows the overall asset mix and comparison to the year end, see right.
The floating rate note (FRN) exposure (the area of the bond markets that likes higher rates!), has edged-up again to its highest level of the year to date, while fixed interest is lower. Holdings that have gone from the portfolio include a hybrid issue from Legal & General, a 2028 issue from Southern Water Services and rump higher-yield dollar issue from Tullow Oil. But, the process of maintaining and refreshing the holdings goes on and we took new issues from Heathrow Funding and Workspace Group, both at the short-dated end, due in 2028. The overall duration of the fixed and floating rate holdings remains low at 2.6.
We were active in the property area of the portfolio, adding to three holdings. We were encouraged by a meeting with the management of Target Healthcare and supported their capital raising, similarly we rebuilt our holding in Tritax Eurobox (which we had cutback in February), as they held a placing. We also added to Shaftesbury on two separate occasions during the period. Within equity, we have been a net seller overall, though exposure is creeping up. We have added further to our holding In Standard Chartered.