What is your investment strategy?

We want to generate a consistent level of income regardless of how economies are performing. This is an income fund first and foremost, and we are flexible about what types of bond we buy.

We manage the three risks associated with bonds independently: ­interest rate risk, which refers to potential losses from rising interest rates; credit risk (the potential for the borrower to default); and market risk (volatility). At the same time, we aim to take advantage of markets valuing bonds for less than they are worth.

How can investors protect against inflation?

Higher inflation means higher interest rates. Meanwhile, the dreadful conflict in Ukraine has created a commodity price shock, adding to already high inflation. This is something investors are right to be wary of, because inflation erodes wealth.

Fortunately, there are a few things you can do. One is to avoid government bonds, particularly ones that will mature far into the future. These are more sensitive to rate increases. This poses a conundrum when events spark a “flight to safety”, which pushes up the value of government bonds. But we still prefer to avoid any that are far from maturity.

Investors are very cautious right now and this creates volatility in bond prices. One way to mitigate this is to invest in corporate bonds that will mature in the next three years. These are less sensitive to interest rate moves. 

Here, we focus on “high-yield bonds”, where we are willing to take on slightly more credit risk because the default rate, which measures how many companies default, is very low. These bonds also offer an attractive yield for the risk.

We also have an “interest rate swap”, which reduces the portfolio’s sensitivity to rate rises. This is a contract where another party agrees to exchange a variable interest rate for a fixed rate. When interest rates go up, we make a profit.