Hello, and welcome to the latest Astute Fund Overview, our opportunity to discuss some of the changes we have made in the VT Astute Funds recently. We prod and interrogate all of our holdings on an ongoing basis, ensuring that, if we were to build the funds today, starting afresh, that we would have enough conviction in each holding to select it again. Of course, this doesn’t always lead to portfolio changes, occasionally, the best thing to do is not to do anything at all.

In the period since our last fund overview, the funds have benefited from strong market performance, and the changes we have made were largely to exploit opportunities and what we believe to be mispricing.

A key driver of returns has been speculation around the number of interest rate cuts. In the US particularly, aggressive bond pricing presented an opportunity to us, allowing us to sell our long-dated US treasuries position and realise those gains. Instead, we put the money to work in UK gilts by adding new and topping up existing positions to take advantage of a yield that is much more favourable.

In February, we took the opportunity to introduce a new fixed income manager, who specialises in an asset called “corporate hybrids”. These are assets that possess characteristics of both bonds and shares.

Corporate hybrids are often confused with a riskier type of bond called “contingent convertibles”, meaning that we can take advantage of mispricing. Whilst both are typically issued by strong, stable companies, and have equity-like features, they are not the same.

Here are the key reasons why they are lower risk: companies that issue hybrid bonds typically have strong motivations to promptly repay them, and corporate hybrids offer higher yields when compared to senior bonds that are issued by the same entities.

Whilst contingent convertibles also have their place when we are sufficiently paid to own them, with interest rates expected to fall this year, corporate hybrids give us the opportunity to access higher yields than senior bonds, for what we believe to be very little added risk.

Finally, the investment outlook for Japan is improving. We discussed this on our last Astute Market Overview on 27th March if you’d like more information. Towards the end of last year, we reduced our exposure to a Japan fund – Jupiter Japan, in favour of Lazard Japan fund. More recently, we have continued this rotation, so further reduced exposure to Jupiter Japan and increased exposure to Lazard Japan.

This holding allows us to benefit from a seed share class – this is a discounted cost that is passed to investors. We believe this approach has more upside potential and is more suited to the current outlook for Japan.

We have also released the latest Quarter Commentary for Q1 2024, where you will find more detail about the funds’ positioning and changes we have made over the last quarter. You can find this on our website, under the VT Astute Funds page.

Thanks for watching, see you next time.