During the month, the Fund selectively purchased newly issued bonds, adding exposure to the industrial companies in the consumer cyclicals and basic industries sectors. Within securitised credit, the Fund added lower-quality securities whilst selling higher-quality holdings that appeared relatively expensive. The Fund also reduced its exposure to high-yield bonds, taking profits on holdings that had performed well. The Fund’s interest-rate sensitivity remains roughly in line with, to slightly longer than its benchmark.
We see a constructive outlook for corporate bonds heading into the fall. Despite continued headlines out of the Middle East and heightened volatility in underlying US Treasury yields and oil prices, there has been limited impact on corporate bonds.
From a fundamental perspective, investment-grade corporate issuers remain on very stable footing in our view. Second-quarter earnings have come in stronger than expected, US Global Systemically Important Banks (GSIBs) reporting record results, and strong performance across a broad range of sectors. Within the technology sector, we are carefully monitoring the sharp increase in capital expenditures and its impact on leverage over time. However, we also recognise the sector's healthy free cash flow generation and the significant increases in forward guidance from hyperscale companies. That said, we remain mindful of the anticipated wave of artificial intelligence (AI)-related new corporate bonds expected to come to market. In the near-term, we believe that the healthy macroeconomic backdrop, and the attractive overall yield on corporate bonds can enable the asset class to perform well through the rest of this year.
