In times of uncertainty, stick to the knitting

John Pattullo, Co-Portfolio Manager of the Henderson Diversified Income Trust, provides an update on the Trust, highlighting performance over past year, areas where he is finding opportunities within the bond market, the current inflation debate, and provides an outlook for the coming months.

Key takeaways

• Our commitment to “sensible income” means that we will stick to the knitting and continue to focus on better quality, higher yielding, less cyclical businesses which have sustainable revenues in the post COVID era.
• As economies have reopened, it is not surprising that inflation has ticked higher, what has been surprising, however, is the severity of global supply chain issues, bottlenecks, and shortages in the labour market.
• The outlook for the coming months remains uncertain due to a number of factors: credit spreads remain tight; inflation remains high, and central banks have begun reducing stimulus.

The difference in the yield of corporate bonds over equivalent government bonds.

Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.

The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.

The policies of a central bank aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money.