- Date:
Marketing Communication
Executive Summary
Key events in market
Credit markets were constructive during April. Corporate fundamentals remained solid, supported by healthy balance sheets, conservative refinancing profiles and still-robust access to primary markets. Credit spreads tightened meaningfully over the month, particularly in higher beta issuers. The geopolitical situation continues to be volatile, with markets oscillating between hopes of a soft landing and renewed concerns about sticky inflation and uneven global growth if Iran-US conflict lingers.
Key performance & positioning updates
April was a positive month for the Fund, driven by strong spread compression that more than offset the drag from higher government bond yields. The Fund outperformed meaningfully, driven by active positioning and security selection. The Fund continued to maintain a diversified allocation across developed and emerging markets, with a focus on issuers with resilient funding structures and focus on high-quality credit with attractive carry and spread compression potential.
Market Update
Global equity markets rebounded strongly in April, as the concern about the impact of the war in the Persian Gulf on the economy receded. This was due to indirect talks between the US and Iran, which started thanks to the mediation of Pakistan.
The MSCI All Countries World Index rose 10.2%, bringing its year-to-date gains to 6.8%. Performance was led by the US (S&P 500 +10.5%) and emerging Asia (+13.8%), while other major equity markets underperformed despite posting strong gains for the month.
In the fixed income market, government bond yields rose slightly, returning close to recent highs, reflecting concerns about rising inflation and more hawkish comments from central banks. However, investors' increased risk appetite favoured a decline in corporate bond spreads.
In the currency market, the US dollar lost almost 2% for the month but remains within the trading range it has held since June last year. Finally, the price of oil and other commodities, including precious and industrial metals, rose as a result of the ongoing blockade of the Strait of Hormuz.
The apparent contradiction between commodity price trends and growing concerns about potential shortages of strategic inputs if the Strait of Hormuz remains closed to commercial shipping, versus the all-time highs reached by stock markets can be explained by examining corporate earnings. The earnings season for the first quarter of 2026 and the upward revision of analysts' estimates for the full year 2026, once again driven by the technology sector, helps to make sense of the markets' sudden recovery after the March sell-off.
Furthermore, stock markets have also found support in the progress toward the nomination of Kevin Warsh as the new Chairman of the Federal Reserve. Warsh is regarded as being more inclined to reduce interest rates based on the anticipated disinflationary effect of the spread of artificial intelligence, as he explained during the Senate Banking Committee hearing. Moreover, Warsh favours reducing the size of the Fed's balance sheet and simplifying its composition, factors that help explain the rise in Treasury yields.
Fund Performance & Positioning
The combination of modestly higher yields and strong spread tightening defined global fixed income performance in April. Government bond curves in major markets, particularly the US, experienced a bear-steepening as investors pushed out expectations for the start and pace of monetary easing. This move in rates weighed on duration-sensitive assets and detracted from the Fund’s return by 69 basis points (bps). However, the Fund’s credit exposure more than compensated for this, with spreads and carry contributing positively. On a relative basis, the Fund’s outperformance versus the benchmark was driven by both top-down allocation and bottom-up security selection, reflecting our preference for high-quality investment grade credit in sectors and regions where balance sheets remain robust and technicals supportive. Security selection contributed positively and underscored the benefit of our focus on issuers with strong fundamentals, prudent leverage and diversified funding sources.
The Fund maintains a meaningful allocation to countries with solid external positions and credible policy frameworks in emerging markets, while remaining underweight more vulnerable sovereigns. Within the Gulf Cooperation Council (GCC), we remained focused on issuers with substantial financial buffers and strong sovereign support. Spreads in the region tightened alongside broader credit markets, and our positions in selected GCC corporates and quasi-sovereigns contributed positively to spread performance. Bonds such as Aldar hybrid, QPetro 2051 and PIF 2053 outperformed the market despite their longer duration. In Latin America, we maintained and selectively increased exposure to names where we see a combination of strong balance sheets, supportive commodity dynamics and disciplined capital allocation. In Europe, subordinated financials, including selected AT1s, performed well as concerns around the banking sector remained contained and investors continued to seek higher-yielding instruments within the investment grade universe. Our exposure to high-quality issuers in this segment was a notable contributor to the Fund’s spread return.
Overall, duration and rating exposures were kept broadly stable, consistent with our cautious but constructive view on global credit. The portfolio remains well diversified across regions, sectors and issuers, with a clear emphasis on strong balance sheets and durable cash flow generation. We remain focused on enhancing portfolio yield while preserving capital and retaining flexibility in an environment of fair valuations and elevated volatility.
Outlook
Global growth remains resilient following a robust first quarter earnings season, though the increasingly prolonged Middle East conflict introduces downside risks should energy supply disruptions intensify. Markets seem confident a resolution can be found before more pronounced risks materialise despite ongoing posturing. The reaction of credit spreads and rates markets is instructive in the outlook financial markets are pricing. GCC credit spreads have underperformed year to date, but we would expect them to tighten gradually as the conflict fades. What is notable is that Saudi trades tighter than Meta, and spreads have outperformed Amazon, speaking to the resilience of the balance sheet in the face of a geopolitical crisis. We continue to believe that there is little buffer in prices for deteriorating credit stories or heavy issuance.
Events in countries such as Romania, where fiscal reforms have come under political pressure, and bonds have consequently experienced more pronounced volatility, has emphasised the importance of fundamentals in maintaining investor confidence. The environment broadly remains healthy for credit and if bank earnings are any signal of credit deterioration, they continued to show little signs of any credit stress or retrenchment. Against this backdrop, the immediate fundamental credit outlook remains benign and spreads are likely to remain tight in our view. Economic and market volatility has increased dispersion and we continue to look for opportunities to optimise credit exposure across the globe, in countries that are resilient to either political or economic pressures.
Rates markets have remained more elevated relative to pre-war levels, particularly at the front end of yield curves, reflecting a view that central banks will be more cautious in evaluating their next steps given potentially higher short term inflation. What is notable is that globally, rates markets have moved in correlated fashion, but markets have been sensitive to idiosyncratic risks. We think this represents a source of potential diversification and opportunity. We think in many instances, long term bonds have largely been reflecting structurally neutral rates, and consequently yield curves have flattened, even in the face of apparent repricing of policy rates and inflation risks. From a strategic perspective we think this means that all in bond yields are attractive, especially for investors with longer term horizons. Downside risks from meaningfully higher yields are lower than perhaps are perceived by investors, whilst in our view any growth shock would likely illicit a response in monetary policy. Central bankers are likely to look through the short term oil price volatility, unless second round effects materialise. Investor surveys suggest portfolio bond weightings are at cyclical lows as a result of scars from 2022, inflation and fiscal profligacy. We continue to see room for volatility in rates markets as the inflation and growth implications of the Middle East crisis materialise, but ultimately should not pose a material risk to returns.
Our focus remains on maintaining a balanced risk profile, we are cognisant that credit spreads are tight, and consequently view yield as the main driver of returns. Given spreads can move wider quickly, our preference remains to keep focus on carry and roll down from lower quality echelons of the market, whilst allocating duration risk to higher quality tiers.
The benefit we believe is that in a steeper yield curve environment, the carry in longer maturity bonds is attractive, as is duration as a growth hedge. We continue to view the fund as offering an attractive proposition to diversify exposure within investment grade, whilst also gaining exposure to countries with robust balance sheets in the event of more malign conditions materialising.