Liontrust SF Monthly Income Bond Fund Q1 2023 review | Insights (2023)

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The Fund returned 3.5% over the quarter, compared with the 2.3% average return from the IA Sterling Corporate Bond sector (the comparator benchmark) and 2.9% return from the iBoxx Sterling Corporates 5-15 Years Index (the target benchmark)*.

Market backdrop

Financial markets generally had a strong start to the year, as stronger than anticipated economic data and falling headline inflation heightened optimism of a soft landing and that central banks are approaching the end of the monetary policy tightening.

This optimism was further supported by the reopening of the Chinese economy, with the potential easing of supply chain pressures supporting lower inflation and stronger growth more broadly.

However, as we progressed through the period, core inflation continued to surprise to the upside, alongside more resilient economic data, raising the prospect of a prolonged period of higher interest rates.

In March, renewed inflation concerns were eclipsed by the significant volatility following the collapse
of Silicon Valley Bank (SVB) in the US, which was swiftly followed by Credit Suisse’s plight in Europe. SVB’s demise marked the second largest bank failure in US history, after suffering large deposit outflows following a failed equity raise to bolster its capital position due to losses on its long-dated Treasuries investments.

This sparked fears about contagion risks for the broader banking sector resulting in large deposit outflows from US regional banks and the re-introduction of emergency funding programmes by the Federal Reserve.

These fears were further amplified by the downfall of Credit Suisse, which saw similarly large deposit outflows amidst waning confidence in the bank after it revealed regulator concerns regarding accounting irregularities after already being under heightened scrutiny. Ultimately, this led to government intervention in order to save the bank, with a last-ditch sale to UBS agreed which included significant guarantees and backing by the Swiss government.

Most notably for bond investors, the rescue deal resulted in the full write-down of the bank’s AT1 securities, despite ranking senior to equity investors who received some compensation, undermining the conventional bank loss absorption capital structure.

This understandably undermined confidence in the AT1 asset class, and subordinated bank debt more broadly, with bond investors concerned that in the event of resolution they may rank junior to equity holders.

Investor concerns over the resilience of the global banking system saw a flight to safety, causing a significant rally in government bonds and resulting in strong returns from duration assets including corporate bonds and growth stocks.

Volatility and banking sentiment recovered towards the end of the quarter, as all major central banks came out to reiterate their confidence in the financial system with the risks largely seen as contained, which reassured investors.

Fund review

Trading activity was high during the quarter. We topped up favoured names across financials, telecoms, insurance and utilities sectors and a few names in real estate.

Our sector allocation remains similar, with a slight increase in the banking, utilities and consumers sectors, and a decrease in insurance.

In terms of disposals, we exited positions in Medical Properties and Aroundtown. Regarding Aroundtown, we lost confidence in the management strategy as they seemed to favour shareholders over bondholders in their investment decisions. We exited the position on increasing concerns of further potential downside risk. Poor market sentiment and negative headlines around the tenant performance in Medical Properties’ portfolio led us to dispose of our holding.

We rotated into new issues, especially in the banking sector where issuance has been high. We participated in a new issue from Prologis, a highly rated property company with a focus on the logistics industry that offered an attractive new issue premium. We also participated in new issues from Lloyds, BNP and ING in the banking sector, which came at attractive valuations.

We implemented several relative value switches over the quarter. We reduced spread duration within our insurance holdings, switching out of longer dated L&G and Axa paper into shorter dated bonds from L&G, as curves flattened with the long end outperforming. We also repatriated some US dollar denominated telecom names, namely Vodafone and Deutsche Telekom, into sterling equivalents, due to recent outperformance of dollar denominated credit.

We were active in terms of our duration positioning over the quarter. Keeping in mind our fair value yield target of 2.5% - 3.0% for UK 10 year government bonds, we started the year 1 year long duration versus the benchmark when yields were standing at 3.67%.

In the aftermath of both the Federal Reserve and Bank of England stepping down to 25bps hikes, yields fell towards our target, and we reduced our duration positioning to 0.5 year long.

Yields moved higher in February when stronger than expected GDP data, supportive consumer confidence and PMIs meant that UK was in a stronger economic position than expected and avoided a technical recession. As a result, we increased our long position to 0.75 years.

However, with the collapse of Silicon Valley Bank and Credit Suisse in March, we saw significant volatility and heightened concerns over the financial system, which caused a rally in government bond yields. We therefore reduced our long duration positioning to 0.5 years.

Our tactical duration positioning contributed 100bps to performance over the quarter.

We were also active in terms of curve positioning. We entered into a US 2s10s curve steepener in February, as the inversion was standing at 88bps, levels that were last seen in 1980s. We closed that positioning profitably in the aftermath of the SVB concerns in the US after US 2 year treasuries yields rallied 100bps. Our curve positioning contributed 5bps of positive performance.

With regards to credit performance, banks and insurance rallied in January and February, but their outperformance was unwound amid flight to safety following the collapse of SVB and Credit Suisse.

Investors in Europe became overly concerned after the write down of the AT1 securities in Credit Suisse which affected subordinated financials in Europe. Even though we had no exposure to Credit Suisse or US regional banks, our overweight positioning on subordinated financials had a negative impact on performance.

However, as volatility and concerns subsided, we have seen most of the sector recover from its spread wides. It is important to note that UK and European banks are not exposed to SVB and Credit Suisse issues, due to several factors. These have better regulation, a more retail focused business model, stronger liquidity and capital ratios as well as BoE and ECB monitoring. Credit ratings continue to be stable/improving in our holdings.

REITs share similar narrative to banks, rallying in January and February until the negative effect of the banking turmoil spurred concerns over unaffordable bank financing. However, the impact of this is now considered to be less severe than initially thought and mostly limited to US commercial real estate. We do not have exposure to that sector and we continue to see value in the names we hold, which offer attractive yields with supportive fundamentals.

Sectors that have performed well during this period comprise travel and telecoms as their ability to pass on costs to consumers in a market with persistent inflation translated into strong operating performance.


The challenge facing global central banks remains, to return inflation to target whilst limiting the impact on their respective economies. The full effect of the significant monetary policy tightening on the economy is still to be felt and a tightening in bank lending standards will surely follow from SVBs collapse, which will add to the economic headwinds.

Given this, we believe that the market is pricing in too many rate hikes and expect that we are close to the peak in interest rates. Economic data has been more resilient than forecast than at the start of the year, and whilst we do expect a recession, we believe that this will be shallower than the market is pricing in. Against this backdrop we are long interest risk, expressed via a 0.75 years long duration position in the UK, as we believe that government bonds offer attractive value.

In terms of credit positioning, we remain of the view that credit offers attractive value, with credit spreads trading well above their long-term average.

A shallower recession is supportive for credit markets coupled with a strong starting position from a fundamental perspective. Balance sheet strength in terms of leverage and liquidity remains strong, as do other metrics such as interest cover. This reflects well termed out debt maturity profiles and companies previously locking in financing at low all in funding costs.

From a technical perspective, the Bank of England corporate bond disposal programme – which had been viewed as a potential negative overhang – continues to progress smoothly as investor appetite remains strong for credit. This is also evident in the new issue market.

So, whilst we do expect economic headwinds to increase going forward, we believe that corporate bonds are well positioned to face this.

From a valuation perspective our fund has a gross redemption yield of 6.12%, which we believe offers compelling value for a portfolio of high-quality corporate bonds.

Discrete years' performance*, to previous quarter-end:

Past performance does not predict future returns






Liontrust Sustainable Future Monthly Income Bond B Gr Inc






iBoxx Sterling Corporates 5-15 years






IA Sterling Corporate Bond






*Source: FE Analytics, as at 31.03.23, B share class, total return, net of fees and interest reinvested.

Understand common financial words and termsSee our glossary


Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Some of the Funds managed by the Sustainable Future team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. Investment in Funds managed by the Sustainable Future team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Some Funds may invest in derivatives. The use of derivatives may create leverage or gearing. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

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What is Liontrust SF monthly income bond? ›

The Fund targets a net total return of at least the IBOXX GBP Corporates (5-15Y) index over the long term (rolling 5 year periods).
Fund statusOpen
Fund typeOpen Ended Investment Company
Fund managerKenny Watson, Aitken Ross, Jack Willis, Stuart Steven
12 month NAV high92.73
12 month NAV low71.51
15 more rows

Do you get monthly income from bonds? ›

Income stream

Most bond funds pay regular monthly income, although the amount may vary with market conditions. This feature can make bond funds an appropriate choice for investors who desire somewhat stable, regular income.

Are fixed income bonds good? ›

Advantages. Fixed-income securities provide steady interest income to investors, reduce risk in an investment portfolio and protect against volatility or fluctuations in the market.

Do income bonds pay interest? ›

Your EE and I savings bonds earn interest from the first month you own them. You get the interest all at once. For a paper bond, this happens when you cash the bond. For an electronic bond, it happens either when you cash the bond or when the bond finishes its 30-year life (it matures).

Are bonds a good investment in 2023? ›

Bond yields are likely to remain relatively high at least through the first half of 2023. Higher yields enable bonds to once again play their historical role as sources of reliable, low-risk income for investors who buy and hold them to maturity.

Why are bonds losing money right now? ›

"The Federal Reserve raised rates more than they have in 40 years. That caused massive losses inside of bonds," says Robert Gilliland, managing director at Concenture Wealth Management. "It's important to understand that bonds are generally secure, but not necessarily safe."

What are the cons of a bond fund? ›

The disadvantages of bond funds include higher management fees, the uncertainty created with tax bills, and exposure to interest rate changes.

What is the expected I bond rate in May 2023? ›

The May 2023 I Bond Rate

The May 2023 I bond composite rate is 4.30% (US Treasury) which is 2.15% earned over 6 months.

What is a disadvantage of a fixed rate bond? ›

Fixed bond disadvantages

The main drawback of fixed rate products is that you can't withdraw your money without incurring penalties. So, if you discover you need your money, or you find a more attractive savings account, your options are limited.

Why not invest in bonds? ›

These are the risks of holding bonds: Risk #1: When interest rates fall, bond prices rise. Risk #2: Having to reinvest proceeds at a lower rate than what the funds were previously earning. Risk #3: When inflation increases dramatically, bonds can have a negative rate of return.

What are the pros and cons of I bonds? ›

Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.

What is the best government bond to buy? ›

U.S. Treasury bonds are considered the safest in the world and are generally called “risk-free.” The 10-year rate is considered a benchmark and is used to determine other interest rates such as mortgage rates, auto loans, student loans, and credit cards.

Why do people buy income bonds? ›

Investors buy bonds because: They provide a predictable income stream. Typically, bonds pay interest twice a year. If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing.

Will bond prices rise in 2023? ›

The Bloomberg Global Aggregate bond index rose 3.7% in 2023 through Thursday after a 16% decline last year. The S&P U.S. Aggregate Bond Index fell 12% in 2022 and is up 3.1% since.

What are the best bonds for 2023? ›

The Best Bond Funds for Rebalancing in 2023
  • American Funds Bond Fund of America ABNFX.
  • Baird Aggregate Bond BAGSX.
  • Baird Core Plus Bond BCOSX.
  • BlackRock Total Return MAHQX.
  • Dodge & Cox Income DODIX.
  • Fidelity Total Bond FTBFX.
  • Fidelity Total Bond ETF FBND.
  • Fidelity US Bond Index FXNAX.

Will 2023 be a better year for investors? ›

Despite the negative attitude of many investors, probably all of the earnings declines are already factored in. Analysts expect earnings to grow by about 4% in 2023. Probably that means that the earnings will not be down, even with pretty substantial misses.

Are bonds safe if the market crashes? ›

Bonds: Bonds are often considered safe investments because they are less volatile than stocks. When the stock market crashes, bonds tend to hold their value better than stocks.

Is it wise to invest in bonds now? ›

If you are looking for reliable income, now can be a good time to consider investment-grade bonds. If are you looking to diversify your portfolio, consider a medium-term investment-grade bond fund which could benefit if and when the Fed pivots from raising interest rates.

Should I sell my bond funds now? ›

Should I Sell My Bonds Now (2023)? Unless there is a change in your circumstances, we believe investors should continue to hold onto their bonds for the following reasons: The bonds will mature at par value, meaning you will receive the face value of the bond at maturity, so present-day dips in value are only temporary.

What are 2 disadvantages of bonds? ›

Some of the disadvantages of bonds include interest rate fluctuations, market volatility, lower returns, and change in the issuer's financial stability. The price of bonds is inversely proportional to the interest rate. If bond prices increase, interest rates decrease and vice-versa.

Are bonds a good investment for seniors? ›

Robust Tax Benefits for Retirees

I bonds are a great idea for retirees and other investors looking for competitive inflation-adjusted returns. “They offer such a great deal that the government limits the annual purchase amount to $10,000 per Social Security number,” Reilly notes. “There are no coupon payments.

What is an income bond with monthly interest? ›

Monthly income bonds are offered by banks and building societies to provide a regular stream of income, paid monthly. You can receive monthly income from bond funds managed by professional investors. The bond fund's distribution yield indicates what investors may get as income payments over the next 12 months.

What is a monthly income trust? ›

The Monthly Income Fund is an open-ended pooled mortgage trust in which Investor money is combined to make a pool of loans which are secured by first mortgages over real property in favour of the Monthly Income Fund.

What is income bond used for? ›

Income bonds exemplify a type of bond which companies and governments use to borrow money from a group of investors by favoring them with guaranteeing face value at maturity and coupon payment triggered by the profit earned by the company.

How do fixed income bonds work? ›

Bonds provide a fixed amount of income at regular intervals. But if the rate of inflation outpaces this fixed amount of income, the investor loses purchasing power. If you invest in corporate bonds, you take on credit risk in addition to interest rate risk.

How do you calculate monthly bond payments? ›

How to calculate bond coupon payment? Assuming you purchase a 30-year bond at a face value of $1,000 with a fixed coupon rate of 10%, the bond issuer will pay you: $1,000 * 10% = $100 as a coupon payment. If the bond agreement is semiannual, you'll receive two payments of $50 on the bond's agreed payment dates.

How do you calculate monthly interest on a bond? ›

Multiply the bond's face value by the coupon interest rate.

For example, if the bond's face value is $1000, and the interest rate is 5%, by multiplying 5% by $1000, you can find out exactly how much money you will receive each year.

How do you calculate monthly interest income? ›

It's easy. Simply divide your APY by 12 (for each month of the year) to find the percent interest your account earns per month. For example: A 12% APY would give you a 1% monthly interest rate (12 divided by 12 is 1).

Is monthly income from a trust taxable? ›

Trust beneficiaries must pay taxes on income and other distributions that they receive from the trust. Trust beneficiaries don't have to pay taxes on returned principal from the trust's assets. IRS forms K-1 and 1041 are required for filing tax returns that receive trust disbursements.

What is trust income of $1200 a year forever? ›

Correct Answer: Option a. Trust income of $1,200 a year forever. It is perpetuity. It is an annuity.

Is income trust taxable? ›

For trusts, distributions are taxable to the beneficiary, and the trust must file a Schedule K-1 for each beneficiary. The beneficiary will then report the income on their tax return. The trust must also generate a Form 1041 to report the total amount of income the trust earned from the grantor's date of death.

Are income bonds high risk? ›

Compared to investment grade corporate and sovereign bonds, high yield bonds are more volatile with higher default risk among underlying issuers. In times of economic stress, defaults may spike, making the asset class more sensitive to the economic outlook than other sectors of the bond market.

How do I cash in income bonds? ›

You can easily withdraw money from your Income Bonds without needing to create an online profile. All you need to do is fill out a quick online form. Make sure you have your account details to hand. You can also download, print and complete a cashing in form.


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