The fund was broadly flat in October, rising 0.06%, slightly behind the benchmark which rose 0.12%. After steady declines from June to September, October saw interest rates reverse direction as consensus around economic activity adjusted higher. This was most notable in US markets where stronger economic data led to interest rates there rising from about 3.2% to 3.7% - a large move for one month.

It was a timely reminder that while we continue to expect interest rates to continue their downward trend, it does not mean an end to market volatility.

Highlights for the month included bonds whose coupons pay a ‘floating’ rate – a rate above the prevailing interest rate. These moved higher during October as higher interest rates increased coupons. These positions rose about 1% over the month and are generally issued by banks such as National Australia Bank (+0.99%) and Commonwealth Bank of Australia (+1.15%).

Operationally we were also pleased with our position in Charter Communications. They reported a strong Q3 with lower net leverage (the amount of debt relative to profitability) as they conserve cashflow generated on their balance sheet. We are pleased with this more conservative approach to capital management in a shifting landscape for broadband & television cable networks.

Elsewhere, Intesa Sanpoalo bonds also rose (+0.99%) during the quarter after a positive outlook from ratings agency Fitch and a strong Q3 result. The Italian bank is seeing a stronger outlook than expected for 2025, and more importantly for bond investors we expect this to flow through to a stronger capital position for the bank’s balance sheet.

Detractors for October were limited to those positions within the fund with longer dated fixed coupons. These include Commonwealth Bank (2034 bond maturity) and JP Morgan (2029 bond maturity) and were issued in US Dollars – the region which saw the greatest increase in interest rates. This saw these bonds fall in value by 1.46% and 1.44% respectively.