Funds

Fund commentary

Markets navigated a busy July as resilient corporate earnings, persistent inflation risks, geopolitical tensions, and mixed US economic data shaped sentiment. Strong second-quarter earnings, led by mega-cap technology companies, supported risk assets, although higher bond yields and elevated equity valuations capped gains. 

US and Iran tensions disrupted key trade routes and pushed Brent crude up more than 23% to around $90pb, reigniting inflation concerns. In response, US Treasury yields moved higher as markets reinforced “higher-for-longer” rate expectations; the 10-year yield rose 27bps to 4.74%. 

The Fed left interest rates unchanged; a rare three-member dissent underscored growing divisions over the policy outlook. US second-quarter GDP expanded 2.3% while the labour market continued to soften and inflation eased. 

Portfolio Review 

The Fund’s QA USD Class fell 2.44% in July as global sovereign bond yields rose sharply alongside US Treasuries, driven by higher energy prices, inflation concerns and hawkish central bank rhetoric. 

Performance was weighed down by longer-duration holdings, including 30-year US Treasuries, GACI 5.125% 2053, Mubadala 2041s and Abu Dhabi Crude Oil Pipeline 2047s. We continue to view these positions favourably given their attractive risk-adjusted return potential and substantial credit cushion. 

The Aa3/A+ rated GACI green bond offers an attractive 6.45% yield, around 10% upside to fair value and trades nearly 5 credit notches cheap. Abu Dhabi Crude Oil Pipeline remains a high-conviction holding. As a strategic national asset providing an export route that bypasses the Strait of Hormuz, we believe state support is highly likely. 

The AA-rated bond offers an attractive yield, around 15% return potential and more than 6.5 notches of credit cushion. 

We reduced exposure to Codelco by trimming our 6.15% 2036 holding and exiting the 4.875% 2044 bonds, which traded near fair value. We also reduced our position in Ruwais Power 6% 2036. 

Currency position returns were mixed. While the Japanese yen enjoyed a 2.41% gain, and the Singapore dollar’s return was marginally higher, the offshore renminbi fell 0.27% and the Swiss franc closed 0.84% lower. 

Outlook 

While central banks remain cautious amid sticky inflation, the backdrop for global fixed income continues to strengthen. Restrictive policy rates are effectively cooling broader economic momentum, establishing a far more stable foundation for the asset class. 

Elevated yields continue to drive the core value proposition of bonds, offering real returns above inflation. Crucially, high starting coupons provide a substantial cushion against interim price volatility, while laying the groundwork for capital appreciation when central banks eventually transition toward rate cuts. Energy supply disruptions and commodity spikes act primarily as a tax on discretionary spending rather than a driver of long-term inflation, supporting the fundamental case for duration. 

Underlying macroeconomic trends point toward a healthy rebalancing rather than a sharp downturn. US labour markets are showing moderate job gains, while consumers are growing increasingly price conscious. This gradual deceleration is moderating price pressures without creating balance sheet strain or elevated corporate defaults, delivering a highly supportive backdrop for credit. 

Monthly data as at: 31/07/2026. All information also available to download here