Aberdeen Life Index Linked Bond Fund
Objective
To provide exposure to an actively managed portfolio of index linked bonds – an asset class that is expected to achieve returns that are ahead of inflation. The fund can be used to diversify away the short-term risk of a sharp correction in equity markets and is an ideal investment to match inflationlinked annuity liabilities.
Manager's Quarterly Report
July 2010
Market review
- News flow in the UK was dominated by the General Election and ongoing concerns about
Euro area debt problems. The Bank of England left the base rate unchanged at 0.5% during the
quarter and maintained the asset purchase target at £200bn. However, the minutes from the
meeting in June highlighted the first split in voting since February 2009, with Andrew Sentance
dissenting in favour of a 0.25% increase, based on a combination of inflation resilience in the
UK and signs of global recovery. Yields on conventional bonds benefited from “safe haven status”
due to the general weakness and volatility in peripheral Eurozone sovereign bond markets. As a
result, yields on ten year maturities fell by 0.58% and thirty year maturities declined by 0.36%.
Index-linked gilts underperformed conventional gilts, with real yields moving slightly higher. The
20 year breakeven inflation rate fell by 0.41% to 3.22% over the period.
Fund review
- The fund underperformed during the quarter. An overweight position in the US versus UK
market added value over the period. However, this was offset by a short duration position and
security selection within index linked gilts.