The global macro-economic landscape shifted considerably during 2022. Inflation, originally triggered by the global reopening and exacerbated by the
Russia-Ukraine war and supply chain bottlenecks, remained elevated and forced central banks to act decisively. The US FOMC, for example, hiked rates
by an unpreceded 4.25% during the year, while the UK implemented 8 separate interest rate increases, with their base rate now 3.5% - the highest level
since before the 2008/09 financial crisis. Although inflation has continued to ease in many economies, it still remains significantly above their longer term
targets and central banks have made it clear that they will maintain their rate hiking cycle, and higher interest rates in general, until inflation is well
under control.
As a result of the aggressive interest rate hiking cycle, global bond yields rose significantly during the year. The US 10-year government bond yield, for
example, a global benchmark for long-term borrowing costs, increased from ~1.5% at the end of 2021 to 3.9% at the end of 2022 ² the biggest annual
increase on record. In response the Global Income Fund locked in attractive hard currency yields for investors by increasing exposure to 1-, 2-, and
3-year US Treasuries. In the final quarter of the year, the fund also took the opportunity to acquire attractively yielding corporate debt from Visa and
NestlÞ, maturing in 2025 and 2027 respectively. In addition to the fixed debt, the fund holds meaningful exposure to blue chip floating corporate debt
which is benefiting from the aggressive interest rate hiking cycle.
As we move forward into 2023 elevated interest rates, and inflation which is not yet fully under control, will continue to put pressure on consumers
globally. In light of the challenging environment the World Bank recently downgraded its global GDP growth projection for 2023 to just 1.7%. Thus, a
significant economic slowdown appears all but inevitable, providing a strong investment case for high quality, attractive yielding debt issued by companies and governments with robust balance sheets - exactly the type of assets held within the Global Income Fund.