April was a challenging month for fixed interest investors. In fact, as mentioned in recent commentaries, prices have been under pressure across global fixed interest markets since the start of last year. But more recently this trend has quickened, causing the Bloomberg Global Aggregate Index, a bell-weather for global investment grade bonds, to fall 5.5% in April.

Lower bond prices reflect a worsening in the global inflation environment, stemming mostly from the broadening impact that Russia’s invasion of Ukraine and China’s hard-line approach to its recent COVID outbreak is having on supply chains around the world. As a result, central banks have begun taking strong action to rein in inflation by rapidly raising interest rates. As a reminder, when interest rates rise, bond prices fall. Which is why fixed interest asset returns have been so negative of late. Unfortunately, the Income Fund was not immune to this with the price of many of its assets also falling this month.

Rising interest rates are however a double-edged sword. While they lower the price of the Fund’s assets today, they simultaneously lift the income, or yield, these assets will produce in the future. This has led to a meaningful improvement in the outlook for returns with the Fund’s yield lifting from 1.6% this time last year to over 4% at the end of April.

There were also some bright spots in terms of company reporting. Golden Goose, the Italian-based branded footwear business with sales in over 70 countries, reported very strong financial results for 2021, and management guided for solid sales growth in the first quarter (+35% year on year). The Golden Goose brand continues to resonate with consumers and the roll out of a direct-to-consumer distribution channel has improved margins during the past year. We remain confident in the company’s niche market position and related ability to generate positive free cash flow going forward.

Whitbread plc also reported a strong set of annual financial results which reflected pent up demand for leisure and business travel across the UK. The hotel group continues to take market share from independent operators which reflects the company’s strong ‘Premier Inn’ brand, scale advantage, consistent service standards, and direct distribution model to end customers. The company’s balance sheet is in a good spot and the executive team reiterated its commitment to an investment grade credit profile to support growth aspirations in the UK and Germany.