Strategic Gilt Fund

Key points

• The fund invests only in UK gilts. There is no corporate exposure of any kind.
• The fund utilises the Charteris process of writing options on the underlying portfolio, with the aim of enhancing the total risk-adjusted return of the portfolio and reducing volatility.
• The fund was launched on 8 December 2006 and is managed by Ian Williams of Charteris Treasury Portfolio Managers.
• Sector: IMA UK Gilts

Current views

The uncertainty over peripheral Eurozone countries subsided in July due to progress on fiscal adjustment, notably in Greece and Spain. However, the announcement of results following the stress tests on European banks failed to improve confidence in Europe’s economy as it emerged that the assessments were not sufficiently rigorous. Combined with the continued deflationary environment across the Eurozone and the slowdown in the U.S, the gilt market offered an attractive haven for investors.

During the month of July the fund outperformed the index by 0.41% with a total return of -0.26 versus a fall in the index of 0.67%. The outperformance would have been substantially higher had the market not rallied sharply on the last day of the month. Indeed, the market had been quite soft during July as it struggled to make progress from the historically low yields which have proved such a barrier in the past. It is our view that the market will continue to struggle to make substantial progress from this level and accordingly we have started to write a continuous programme of covered call option writing.

We shall continue to actively manage your portfolio in this way to ensure optimum performance while the market trades relatively flat, yet we remain poised to act appropriately when signs of accelerated growth reappear.