Fund commentary

Aviva Investors Strategic Bond Fund

Month in review for January 2024

Chris Higham

Fund Manager

Summary

Month in review

After finishing 2023 on a strong note, global bond markets were more muted in January as benchmark sovereign bond yields moved modestly higher. Corporate bond spreads narrowed across most global sectors, with the sharpest move being seen in real estate and insurance. The fund posted very strong relative performance over January, driven primarily by security selection.

Looking ahead

We believe the backdrop for bonds is positive given the income now available and a monetary easing cycle ahead. That said, there are now a huge number of cuts priced into many of the major markets.

Key facts

Fund managers
Chris Higham since 09/2008,
James Vokins since 06/2016
Share class inception date
22/09/2008
Fund size (as at 31/01/2024)
GBP 201.2m
Benchmark
Composite Index

Fund overview

Objective: To grow your investment through a combination of income and capital returns, whilst aiming to provide a net return greater than that of the benchmark over the long term (5 years or more) (after charges and taxes). The benchmark (the ""Index"") is a composite index, as detailed in our prospectus.

Month in review

After finishing 2023 on a strong note, global bond markets were more muted in January as benchmark sovereign bond yields moved modestly higher. The month did see elevated volatility, however, as the market reacted to indications from US Federal Reserve chair, Jerome Powell, that there was to be no cut in American interest rates in March, as had been widely anticipated. Investors were also left a little disappointed on the lack of clarity on the timeline for cuts from the Bank of England. Overall, while lower rates appeared to remain very much on the table - with central banks removing explicit references to a tightening bias in their rhetoric – policy makers pushed back on hopes for earlier-than-expected moves.
With risk appetite holding up after the positive end to 2023, corporate bond spreads narrowed over the month across most global sectors, with the sharpest move being seen in real estate and insurance. At the credit quality level, BBB bond modestly outperformed in spread terms.
The fund posted very strong relative performance over January, driven primarily by security selection. Positioning in euro front-end credits and sterling credits across the curve added notable value. The top-performing sector was banking, primarily through sterling subordinated financials, where we have begun taking profit after a strong rally. Greene King was the top contributor at the individual security level.

Performance

For the latest Monthly, Cumulative, and Annualised Fund performance data please refer to the PDF factsheet below.

Past performance is not a guide to future performance
Basis: Mid to mid, net income reinvested, net of ongoing charges and fees, in the share class reference currency and net of tax payable by the Fund. For full details of the benchmark please see the PDF factsheet.

The Fund's performance is compared against the one third Bloomberg Treasury G7 Index (GBP hedged), one third Global Aggregate Corporate Index (GBP hedged), and one third Bloomberg Global High Yield Index ex CMBS ex EMG 2% issuer capped (GBP hedged).

Looking ahead Last updated 31 January 2024

Looking forward into the second quarter of the year, there is an interesting interaction of two themes: the ongoing lagged effect of monetary tightening versus the continued strength in the US economy, which has been buoyed by the positive impulse from easier financial conditions and rising real wages. This brings with it uncertainty on inflation which could lead to more rates volatility. To add to this, 2024 is a year full of political risk, including the potential for a Trump presidency that bodes poorly for Europe given possible tariffs and reduced support for Ukraine.
Overall, with the interest rate hiking cycle over in most major markets, we believe the backdrop for bonds is positive given the income now available and a monetary easing cycle ahead. That said, there are now a huge number of cuts priced into many of the major markets with the economic “soft landing” now discounted to some degree. The extent of further easing will be determined not by the need for policy to be made less restrictive but by how much policy will need to be accommodative in the face of a weaker growth outlook.

Risks

Full information on risks applicable to the Fund are in the Prospectus and the Key Investor Information Document (KIID).

Investment and currency risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.

Convertible securities risk

Convertible bonds can earn less income than comparable debt securities and less growth than comparable equity securities, and carry a high level of risk.

Credit and interest rate risk

Bond values are affected by changes in interest rates and the bond issuer's creditworthiness. Bonds that offer the potential for a higher income typically have a greater risk of default.

Derivatives risk

Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.

Illiquid securities risk

Some investments could be hard to value or to sell at a desired time, or at a price considered to be fair (especially in large quantities).As a result their prices can be volatile.

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Access key fund documentation and performance reports.

Important information

THIS IS A MARKETING COMMUNICATION

The source for all performance, portfolio and fund breakdown data is Morningstar unless indicated otherwise. All data is as at the date of the Factsheet, unless indicated otherwise.

Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as personalised advice of any nature. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Portfolio holdings are subject to change at any time without notice and information about specific securities should not be construed as a recommendation to buy or sell any securities.

For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained, free of charge from Aviva Investors, PO Box 10410, Chelmsford CM99 2AY. You can also download copies at www.avivainvestors.com

Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St Helen’s, 1 Undershaft, London EC3P 3DQ. An Aviva company.

Bloomberg® and one third Bloomberg Treasury G7 Index, one third Bloomberg Global Aggregate Corporate Index, and one third Bloomberg Global High Yield Index ex CMBS ex EMG 2% issuer capped Index (the “Benchmark” or the “Index”) are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Aviva Investors. Bloomberg is not affiliated with Aviva Investors and Bloomberg does not approve, endorse, review, or recommend the, Aviva Investors Strategic Bond Fund. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Aviva Investors Strategic Bond Fund.


All performance figures shown are up to the latest month end unless otherwise stated and are on a total return basis. Up to 05 April 2017, the figures include income reinvested after deducting basic rate income tax. From 06 April 2017, income is reinvested without deducting this tax. This will impact fund performance figures post 06 April 2017.