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Aviva Funds GBP Reserve Fund - News
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Aviva Funds GBP Reserve Fund
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Fund
News
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Aviva GBP Reserve comment - Jun 06
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Tuesday, 29 August 2006
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Fund Manager Comment
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Market Review
Once again, the Bank of England Monetary Policy Committee (MPC) was divided on its decision to leave interest rates unchanged at 4.5%. Residual inflationary pressures remain a concern with the consumer price index rising above the official 2% target in May, attributable to the impact of higher energy prices on domestic gas and electricity bills. There was further evidence of an upturn in the housing market with mortgage lending exceeding ú1 trillion for the first time in May, whilst new home loans were well up on April. The latest surveys from the RICS and property research firm Hometrack also painted a positive picture of activity.
From the high street, the June CBI distributive trades survey found the majority of retailers reporting that sales were up, with takings boosted by the World Cup, whilst optimism amongst manufacturers has improved. The Office of National Statistics revised up the final estimate of UK Gross Domestic Product for the first quarter of 2006, which showed the economy expanding at a steady pace of 2.3% annualised.
Fund Review
The Fund remained invested in high yielding cash deposits and Floating Rate Notes (FRNs). These are bonds with a coupon payment that changes according to movements in interest rates. Their coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other. Money market investors have increasingly looked towards FRNs as an alternative investment to Certificates of Deposit.
Outlook
The money markets are expecting a 25 basis point interest rate rise in the third quarter but the MPC may opt for a more cautious approach if the upturn in economic activity loses momentum over the summer months.
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Aviva GBP Reserve comment - Jan 06
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Wednesday, 15 February 2006
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Fund Manager Comment
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Market Review
Although the Bank of England Monetary Policy Committee (MPC) left interest rates unchanged at 4.5%, investors drew encouragement from the subsequent publication of the monthly minutes, which revealed that one MPC member - Stephen Nickel, had voted in favour of a further rate cut. The retail sector will have an important bearing on future monetary policy with the MPC awaiting trading statements for the Christmas season from leading stores. On this front, the British Retail Consortium provided some source of encouragement, reporting like-for-like sales were up in November as the cold weather boosted clothing and food takings. However, in his annual pre-budget statement the Chancellor halved the Treasury's growth forecast for the UK economy from 3.5% to 1.75% for 2005 as a whole, citing inflationary pressures caused by the global rise in oil prices. This is in tune with year on year GDP growth of 1.6% for the third quarter. The combination of intense competition in the high street, below trend growth and continuing wage moderation has helped to contain any lasting inflationary impact from higher fuel prices. The headline Consumer Price Index (CPI) declining for the second consecutive month in November, although it remains fractionally above the Bank of England's 2% target.
Fund Review
The Fund remained invested in high yielding cash deposits and Floating Rate Notes (FRNs). These are bonds with a coupon payment that changes according to movements in interest rates. Their coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other. FRNs have performed strongly of late as money market managers have increasingly looked towards them as an alternative investment to Certificates of Deposit.
Outlook
Looking ahead, the Bank of England is likely to adopt a cautious stance and refrain from further rate cuts in the near term, unless there is a marked deterioration in the economic outlook, as it anticipates the UK economy should regain momentum in 2006.
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Aviva GBP Reserve comment - Dec 05
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Wednesday, 4 January 2006
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Fund Manager Comment
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Market Review
The headline Consumer Price Index (CPI) declined for the first time since September 2004, to an annualised rate of 2.3% during October on the back of lower banking charges and food prices. The latest quarterly inflation report from the Bank of England projected that inflation will meet its 2% target in the next two years. The Bank also expects UK economic growth to pick up in 2006 reflecting a recovery in exporting industries and domestic demand. As expected, interest rates were left unchanged in November with the Monetary Policy Committee (MPC) voting unanimously to leave the base rate at 4.5%, suggesting hopes of a further interest rate cut in the near-term may be misplaced. However further evidence of continuing weakness of consumer demand and poor high street sales counteract this with many City forecasters of the view that the Bank is being too optimistic in its assessment. The latest CBI distributive trades survey highlighted confidence amongst retailers fell to its lowest level in 22 years with the British Retail Consortium reporting a seventh successive decline in like-for-like sales during October.
Fund Review
The Fund remained invested in high yielding cash deposits and Floating Rate Notes (FRNs). These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other. FRNs have performed strongly of late as money market managers have increasingly looked towards them as an alternative investment to Certificates of Deposit.
Outlook
With headline inflation still above the official 2% target the MPC is likely to adopt a cautious stance and refrain from further rate cuts unless there is a marked deterioration in the economic outlook.
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Aviva GBP Reserve comment - Nov 05
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Friday, 9 December 2005
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Fund Manager Comment
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Market Review
As had been anticipated by the money markets, the Bank of England opted to leave interest rates unchanged at 4.5%. Some MPC members expressed concerns about the weakness of domestic demand, particularly the consumer sector, while others suggested the official data had overstated the downturn in growth and remain concerned about the secondary impact of higher energy prices. However, the headline Consumer Price Index (CPI) was weaker than anticipated in September, falling to an annualised rate of 2.7% from 2.8% the previous month. Although higher fuel prices have contributed to the rise in inflation, this was offset by discounted footwear and clothing prices, a reflection of intense competitive pressure amongst retailers. Indeed, there were signs that discounts on the high street have had the desired effect with retail sales picking up in September after a sluggish summer season. Elsewhere, the latest quarterly survey from the Confederation of British Industry highlighted the continuing weakness of the manufacturing sector with both orders and output declining more sharply than expected.
Fund Review
The Fund remained invested in high yielding cash deposits and Floating Rate Notes (FRNs). These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other. FRNs have performed strongly of late as money market managers have increasingly looked towards them as an alternative investment to Certificates of Deposit.
Outlook
The sterling money market is anticipating a further 25 basis points reduction in interest rates by early 2006 but the MPC is likely to adopt a more cautious stance towards further rate cuts unless there is a marked deterioration in the economic outlook.
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Aviva GBP Reserve comment - Sep 05
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Monday, 14 November 2005
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Fund Manager Comment
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Market Review
As expected, the Bank of England Monetary Policy Committee voted unanimously to leave interest rates on hold at 4.5% early in the month. The minutes of the September Monetary Policy Committee (MPC) indicated the MPC is of the view that Hurricane Katrina will not have a permanent negative effect on the US economy and remains optimistic on the global economic outlook, suggesting it may look to rebalance growth away from consumption towards exports. On the inflation front, the headline consumer price index (CPI) for August was in line with expectations although core inflation remains subdued. On the other hand, although average earnings are moderating as growth has slowed, pay settlements are growing at the fastest rate since 1998. If growth picks up in the second half of 2005 as the MPC is expecting, any pick up in wage inflation would become an impediment to further rate cuts. Although manufacturing output appears to have stabilised, as the lagged effects of sterling weakness appear to have supported activity with little impact from higher energy prices, the consumer sector continues to slow. Retail sales were weaker than expected during August, with unemployment drifting upwards and a weaker housing market encouraging consumers to save more.
Fund Review
The Fund remained invested in high yielding cash deposits and Floating Rate Notes (FRNs). These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other. FRNs have performed strongly of late as money market managers have increasingly looked towards them as an alternative investment to Certificates of Deposit.
Outlook
The sterling money market is anticipating a further 25 basis points reduction in interest rates by early 2006 but the MPC is likely to adopt a more cautious stance towards further rate cuts unless there is a marked deterioration in the economic outlook.
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Aviva GBP Reserve comment - Aug 05
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Thursday, 22 September 2005
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Fund Manager Comment
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Market Review
As expected, the Bank of England opted to reduce interest rates by 25 basis points to 4.5% early in the month. The minutes of the August Monetary Policy Committee (MPC) meeting highlighted a 5-4 vote in favour of a cut, with those in favour basing their view on the slowdown in the consumer sector. Those voting against, including the Bank of England governor Mervyn King, remain concerned about inflation. The latest Consumer Price Index for July added credence to this view, recording a 7-year high on the back of higher fuel prices. There were also signs that retailers had become reluctant to discount prices as anticipated despite ongoing concerns over the sluggishness of high street sales. Elsewhere, there was further evidence of a slowdown in the housing market with the Nationwide Building Society reporting annualised house price growth had fallen to its lowest level in nine years. The latest CBI industrial trends survey revealed manufacturing orders fell at their sharpest rate for two years in August, as firms continue to be squeezed by rising cost pressures on the back of the surge in energy and metal prices.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
The sterling money market is looking for a further 25 basis points reduction in interest rates but ongoing concerns over the near term inflation outlook suggest there is scope for disappointment on this front as the MPC is likely to adopt a more cautious stance.
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Aviva GBP Reserve comment - Jun 05
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Friday, 29 July 2005
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Fund Manager Comment
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Market Review
Sterling money market yields fell during the month as data releases continued to highlight slowdown in UK economic growth while the latest minutes from the monthly meeting of the Bank of England Monetary Policy Committee (MPC) rekindled hopes of a near-term reduction in UK interest rates.
The Bank of England 's Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 4.75%for the tenth consecutive month, which came as little surprise to the market. Although retail sales rose in line with expectations during May, the latest figures from the Office of National Statistics (ONS) indicate the annual rate of retail sales growth has now fallen to its lowest level since January 1999.The abrupt slowdown in consumer spending also meant the ONS revised down its final estimate for UK economic growth during the first quarter, indicating the economy grew by just 0.4%with a sharp fall in manufacturing output.
The publication of the minutes from the MPC 's June meeting raised hopes of a reduction in UK interest rates during the third quarter with two members voting for a rate cut inflationary pressures remain muted. The latest Consumer Price Index added credence to this view with year-on-year inflation steady at 1.9% for the third consecutive month in May, as rising air fares and food prices were offset by slower growth in petrol prices.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
A combination of weaker domestic economic data and sluggish growth in the eurozone, the UK 's major export market, indicates that a reduction in interest rates is likely in the second half of 2005.
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Aviva GBP Reserve comment - May 05
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Tuesday, 24 May 2005
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Fund Manager Comment
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Market Review
The Bank of England's Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 4.75% for the eighth consecutive month. This came as no surprise given growing evidence of a slowdown in consumer spending. Retail sales unexpectedly fell during March, and this followed hard on the heels of a number of gloomy trading statements from leading retailers, such as pharmacy chain Boots. Although inflation was higher than expected in March, with the Consumer Price Index (CPI) increasing at an annualised rate of 1.9%, this was mainly due to higher energy costs and it is unclear whether any price hikes will stick as recently consumers have refused to spend when retailers raise prices. Sluggish growth in the eurozone, the UK's largest export market, has curbed demand for manufactured goods and the latest industrial production numbers highlighted a sharp fall in February. However, the MPC is keeping a close watch on the housing market, where a 0.9% rise in the Nationwide House Price Index during April provided some evidence of stabilisation with mortgage approvals climbing to a 7-month high.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
Despite generally softer economic data releases of late, hawkish rhetoric from MPC officials suggests they will maintain a pre-emptive stance on monetary policy and sanction a further rate hike to 5% in the summer, to head off any residual rise in inflationary pressure and keep the CPI below 2%.
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Aviva GBP Reserve comment - Apr 05
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Monday, 25 April 2005
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Fund Manager Comment
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Market Overview
The Bank of England's Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 4.75% for the seventh consecutive month, although as was the case in February the verdict was not unanimous with two votes for a 25 basis point rise. Of late, MPC officials have cautioned against the inflationary risks of high import prices and rising wage demands. However, despite low unemployment the latest Gross Domestic Product (GDP) figures released in March indicate consumer spending slowed down sharply in the fourth quarter of 2004 as the impact of earlier interest rate rises fed through. The latest retail sales figures for February came in weaker than expected providing further evidence of a clear softening in consumer demand. The key measure of inflation - the Consumer Price Index (CPI) - was unchanged at an annualised rate of 1.6% in February with higher food and transport costs offset by intensive price competition amongst retailers to attract demand for discretionary items such as furniture and computer games. Looking at industrial data, manufacturing output for January was in line with expectations, with surveys indicating continued modest growth in the coming months. However the strength of sterling, combined with sluggish growth in the eurozone, suggest export growth is unlikely to be sufficiently strong to offset weaker consumption.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
Despite generally softer economic data releases of late, hawkish rhetoric from MPC officials suggests they will maintain a pre-emptive stance on monetary policy and sanction a further rate hike to 5% in the summer, to head off any residual rise in inflationary pressure and keep the CPI below 2%.
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Aviva GBP Reserve comment - Mar 05
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Tuesday, 29 March 2005
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Fund Manager Comment
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Market Review
Rising gilt yields set the tone for the money markets during February as hopes of a near-term reduction in interest rates effectively disappeared as data releases highlighted the resilience of the UK economy.
The Bank of England's quarterly inflation report indicated its assessment of the UK economy is broadly unchanged from November, with inflation expected to reach the official 2% target in 2006 as higher import prices and rising demand put upward pressure on the Consumer Price Index (CPI). Although intense competition amongst retailers is currently keeping a firm lid on core goods inflation, other data has given cause for concern. Producer price data indicated factory input prices had risen 9.4% in January while earnings growth rose to a 3-year high of 4.5%, a factor that the Bank of England has recognised as a major risk to its inflation forecast given the lack of spare capacity in the UK economy. Although the Monetary Policy Committee (MPC) voted to leave interest rates on hold at 4.75%, the verdict was not unanimous as in previous months with one vote for a 25 basis point rise. The latest manufacturing and industrial production data for December came in ahead of expectations, which may well trigger an upward revision in fourth quarter growth for the UK economy as a whole. January retail sales were in line with forecasts, after a decline in December, while official house price surveys continue to indicate activity in the market is cooling off.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
Market expectations have now moved from a near-term cut to anticipating a further rate hike to 5% by mid 2005, swinging round to our view that the MPC will opt to take out an "insurance policy" against the danger of consumers becoming too comfortable with current interest rate levels.
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Aviva GBP Reserve comment - Feb 05
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Wednesday, 23 February 2005
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Fund Manager Comment
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Market Review
A surprisingly steep rise in inflation set the tone for sterling money markets as this put an end to hopes of a near-term reduction in interest rates and triggered a rise in yields.
The closely watched consumer price index was unexpectedly strong for December, registering a 1.6% year-on-year increase, although this was largely attributable to seasonal rises in furniture prices, utility bills, and demand for recreational items such as computer games. Fourth quarter GDP figures for the UK came in slightly ahead of expectations, although the difference was not wide enough to trigger any change in monetary policy. Once again, the Monetary Policy Committee (MPC) voted unanimously to leave interest rates unchanged at 4.75%, and the minutes of the January meeting revealed a possible rate cut had not been discussed. Elsewhere, there were further signs of weakness in the manufacturing sector, with UK factory output falling for the fifth month in six during November. The latest CIPS survey of the service sector showed that activity cooled off last month after picking up in November. Recent house price surveys continue to suggest that the market is clearly slowing. In addition, mortgage approvals fell to a 5-year low in December.
Against the background of a weaker housing market and higher interest rates, retail sales volume fell sharply in December, with a number of leading high street chains reporting a sluggish Christmas season.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
Although the sterling futures market is not anticipating any further UK interest rate rises in 2005, we would not rule out the possibility that the MPC may want to take out an "insurance policy" against the danger of consumers becoming too comfortable with current interest rate levels, and sanction a further 25 basis point rise in the first quarter of 2005. In this environment, we will continue to look for tactical trading opportunities in the money markets, focusing on longer-dated paper.
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Aviva GBP Reserve comment - Jan 05
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Tuesday, 25 January 2005
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Fund Manager Comment
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Market Review
The sterling money markets were preoccupied with the prospect that UK interest rates may have peaked as the minutes of the monthly Monetary Policy Committee (MPC) meeting revealed the Bank of England had considered a reduction in interest rates. In the event, the MPC voted unanimously to leave the UK base rate on hold at 4.75%.
Although the Office of National Statistics (ONS) revised up third quarter GDP growth, the annual rate of growth for the UK economy remained unchanged at 3.1%. However, the ONS surprised the financial markets by revealing that the UK's trade deficit with the rest of the world amounted to ú8.8 billion, which was significantly worse than anticipated. Recent housing market surveys continue to suggest the impact of higher interest rates is feeding through. Nationwide, the UK's largest building society, announced a 0.2% decline in house price inflation during December, while mortgage approvals fell 41% in November. However, there was brighter news from the consumer sector in the form of an upturn in retail sales during November as aggressive price discounting and strong promotions tempted consumers back into the leading high street stores. Inflation was also unexpectedly strong, as higher energy prices fed through to an increase in utility bills. The Consumer Price Index appreciated by 1.5% year-on-year during November although this is still well below the Bank of England's 2% target.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the London Inter Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
Although the sterling futures market is not anticipating any further UK interest rate rises in 2005, we would not rule out the possibility that the MPC may want to take out an "insurance policy" against the danger of consumers becoming too comfortable with current interest rate levels, and sanction a further 25 basis point rise in the first quarter of 2005. In this environment, we will continue to look for tactical trading opportunities in the money markets, focusing on longer-dated paper.
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Aviva GBP Reserve comment - Dec 04
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Monday, 3 January 2005
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Fund Manager Comment
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Market Review
Weaker UK economic data continued to set the tone for sterling money markets in October as investors became more convinced that the current interest rate cycle is nearing its peak. Once again, the Monetary Policy Committee (MPC) voted unanimously to leave the UK base rate on hold at 4.75% with faltering economic growth and the slowdown in the housing market uppermost on policymakers' minds. Indeed, the first estimate of GDP growth for the third quarter came in well below expectations at 0.4%. The October Nationwide survey highlighted a fall in prices over the month and a sharp slowdown in year-on-year growth. The one notable bright spot was a pick up retail sales during September. Despite this and record highs in the oil price, the Consumer Price Index fell to 1.1%, largely on the back of intensive competition in the high street. Consensus expectations are now for the UK base rate to remain at 4.75% for the remainder of the year.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical opportunities along the yield curve.
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Aviva GBP Reserve comment - Nov 04
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Monday, 22 November 2004
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Fund Manager Comment
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Market Review
Weaker UK economic data continued to set the tone for sterling money markets in October as investors became more convinced that the current interest rate cycle is nearing its peak.
Once again, the Monetary Policy Committee (MPC) voted unanimously to leave the UK base rate on hold at 4.75% with faltering economic growth and the slowdown in the housing market uppermost on policymakers' minds. Indeed, the first estimate of GDP growth for the third quarter came in well below expectations at 0.4%. The October Nationwide survey highlighted a fall in prices over the month and a sharp slowdown in year-on-year growth. The one notable bright spot was a pick up retail sales during September. Despite this and record highs in the oil price, the Consumer Price Index fell to 1.1%, largely on the back of intensive competition in the high street. Consensus expectations are now for the UK base rate to remain at 4.75% for the remainder of the year.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical opportunities along the yield curve.
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Aviva GBP Reserve comment - Oct 04
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Monday, 1 November 2004
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Fund Manager Comment
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Market Overview
Further indications that the Bank of England's series of interest rate rises may be nearing its end set the tone for money markets in September. Although the MPC voted unanimously to leave the UK base rate on hold at 4.75%, policymakers were concerned about the risk of a sharp correction in the housing market with a potentially adverse impact on consumption. Figures from the British Bankers Association indicate mortgage lending rose at the slackest pace for two years during August while the latest Nationwide house price survey recorded a second month of subdued growth in September, suggesting higher interest rates are curtailing market activity. The latest consumer price index figures revealed that annual inflation fell back to 1.3% in August, due largely to intense competition in the high street as retailers discounted clothing prices. While most analysts are still expecting a further rise in UK interest rates in November, recent data has reduced the likelihood of an imminent move.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Market outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical opportunities along the yield curve.
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Aviva GBP Reserve comment - Sep 04
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Friday, 17 September 2004
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Fund Manager Comment
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Market Overview
Weaker US economic data and indications that the Bank of England's series of interest rate rises may be nearing an end set the tone for money markets in August. The Bank's Monetary Policy Committee voted unanimously to increase the UK base rate by a further 25 basis points to 4.75%. However, recent statements from leading monetary officials have signalled that the current cycle of interest rate rises may not be far from its peak. The Nationwide Building Society's monthly house price survey revealed a marked slowdown in August while UK retail sales fell in July due to a combination of higher interest rates and bad weather. The latest consumer price index figures revealed that the annual rate of inflation fell back to 1.4% in July, as furniture retailers discounted prices. This could well reflect the recent slowdown in the housing market and indicates that a further interest rate rise is unlikely in September.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Market outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical opportunities along the yield curve.
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Aviva GBP Reserve comment - Aug 04
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Tuesday, 14 September 2004
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Fund Manager Comment
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Market Overview
The prospect of a near-term rise in UK interest rates set the tone for bonds and money markets in July. Although the Bank of England's Monetary Policy Committee voted unanimously to leave interest rates on hold at 4.5%, subsequent data releases pointed to a further tightening of monetary policy in August. UK retail sales rose at the fastest pace for six months while the Nationwide Building Society's monthly survey revealed a sharper-than-expected rise in house prices of 2.1% in July. As a whole, the UK economy is growing at above its long-term trend level, with GDP accelerating at an annualised rate of 3.7% during the second quarter, the fastest rate of growth in almost four years. The latest consumer price index figures revealed that annual rate of inflation ticked up to 1.6% in June. Although inflation remains below the Bank of England's 2% target, it has now risen appreciably from a March low of 1.1%.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the London Inter Bank Offer Rate), which is the rate at which banks lend to each other.
Market outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical opportunities along the yield curve.
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Aviva GBP Reserve comment - Jul 04
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Wednesday, 11 August 2004
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Fund Manager Comment
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Market Overview
The prospect of impending interest rate rises on both sides of the Atlantic set the tone for bonds and money markets in June. The US Federal Reserve's decision to raise interest rates by 0.25% to 1.25%, the first increase in over four years, was in line with expectations, as was the latest 0.25% rate rise in the UK. The Bank of England's Monetary Policy Committee (MPC) cited house price growth, high consumer borrowing and upward-trending inflation as the key justifications for its decision to raise interest rates to 4.5%, which was a unanimous verdict. Looking at the economic data in more detail, there has been a broad based improvement in manufacturing output, while retail sales remain buoyant. The Nationwide Building Society figures show that house prices rose by 19.1% year-on-year in June. Higher petrol prices pushed the consumer price index up to 1.5% in May, still well below the official 2% target.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes. These are bonds with a coupon payment that changes according to movements in interest rates, and as such give investors protection against rising interest rates. The coupon is usually priced at a premium to LIBOR (the Inter London Bank Offer Rate), which is the rate at which banks lend to each other.
Outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical opportunities along the yield curve.
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Aviva GBP Reserve comment - Apr 04
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Friday, 4 June 2004
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Fund Manager Comment
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Market Review
During April, evidence of a significant revival in the US economy, heralded by far stronger than expected labour market figures, and maintained by data releases throughout the month, marked a sea-change in investors' view of global economic recovery and interest rate expectations. Due to the close correlation of international bond markets, this negatively affected bond markets worldwide including the UK. Gilt yields rose across the yield curve as prices fell although this was particularly marked with more interest rate sensitive shorter dated bonds. Nevertheless, UK gilts' underperformance of European bonds made them look relatively attractive to investors which provided some counterweight to the unsupportive economic background. The Bank of England left base rates unchanged over April, but against a background of rising house prices they raised them by 0.25% at their May meeting.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes (short-dated bonds whose yields are reset regularly, generally every three months, in line with LIBOR (the Inter London Bank Offer Rate) the rate at which the largest banks lend to one another.
Outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - Mar 04
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Wednesday, 19 May 2004
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Fund Manager Comment
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Market Review
During March, disappointing US labour market figures coupled with the terrorist attack in Madrid pushed down global bond yields. The first major Islamic terrorist attack in Europe encouraged capital flight to 'safe haven' investments such as government bonds and cash, and heightened tension in the Middle East added to investors' uncertainty.
Gilts were supported by US Treasuries' strength, a neutral UK budget and global tension, although concerns about the timing and extent of UK interest rate rises proved a negative factor, as both the housing market and consumer spending remained robust. By the close of the month, strong housing market and mortgage lending data increased expectations of an imminent rise in UK interest rates. House prices rose 0.7% in February according to a Hometrack survey, while the Bank of England reported that mortgage lending had increased by ú8.98bn in February, the biggest monthly rise since October 2003. Britons' appetite for credit remained undiminished, with Bank of England figures showing that lending secured on dwellings rose ú8.98bn last month, a record 14.5% higher than in the same period last year. A growing number of bond market participants expect a base rate rise when the Bank of England's Monetary Policy Committee meet in April.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes (short-dated bonds whose yields are reset regularly, generally every three months, in line with LIBOR (the Inter London Bank Offer Rate) the rate at which the largest banks lend to one another.
Outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - Feb 04
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Wednesday, 24 March 2004
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Fund Manager Comment
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Market Review
During February, despite continued equity market strength and broadly positive economic data, government bond yields fell slightly in the US, UK and Europe, with prices remaining broadly robust. Bond markets chose to focus on Alan Greenspan's suggestion that US interest rates would stay low in the short term and on weaker US economic data late in the month.
In the UK, the publication of the Monetary Policy Committee's (MPC) minutes proved a negative factor for gilts, revealing that MPC members had unanimously voted for the base rate rise to 4%. Concerns over the resilience of consumer demand persisted as data showed that January had been a particularly strong month for retail sales - up 0.6% - and mortgage lending - up by 5.9%. Revised official figures showed that the British economy grew last year by 2.3%, faster than previously believed, as consumer spending propelled growth to the highest level in three years. The consensus is that this growth surge is priced into Bank of England forecasts and that the next interest rate rise will not come until May. Data suggested that the long downturn in UK business investment may be over, revealing the first positive annual growth for two years and a sharp upturn in manufacturing spending.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes (short-dated bonds whose yields are reset regularly, typically every three months, in line with LIBOR (the London Inter-Bank Offer Rate) the rate at which the largest banks lend to one another.)
Outlook
We intend to increase our holding in relatively longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - Jan 04
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Monday, 8 March 2004
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Fund Manager Comment
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Market Review
The UK economy continued to strengthen, with the long-suffering manufacturing sector reporting its fastest rise in orders since the mid-90s. Even sterling's appreciation against the dollar did little to knock confidence. Although the Monetary Policy Committee (MPC) left interest rates on hold at 3.75%, there was wide consensus that next movement would be upwards. This was underlined by the release of the MPC minutes for January, which revealed an upbeat assessment of the global economy, alongside continuing concern over the strength of housing market. As a result, cash yields increased along the money market yield curve.
Fund Review
The fund remained invested in high yielding cash deposits and floating rate notes during January.
Outlook
We intend to increase our holding in longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - Dec 03
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Tuesday, 27 January 2004
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Fund Manager Comment
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Market Review
The UK economy continued to strengthen, with even the battered manufacturing sector benefiting from stronger demand in the US and Asia. The one drag on economic growth, however, is the weak level in demand in Europe - the UK's principal trading partner. In response to record consumer debt and a surging housing sector, the Monetary Policy Committee (MPC) increased UK interest rates by 0.25% at the start of the month. To steady investor nerves that this didn't automatically signal further rises, the MPC stressed that it should be sufficient to keep inflation below the government's target of 2.5% throughout 2004. While some investors re-evaluated the likely pace of monetary tightening, the sterling futures market continued to price in the prospect of another 0.25% rate rise by end-December and a 1% increase by September 2004. As a consequence, yields increased along the sterling money market yield curve.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes during November.
Outlook
We intend to increase our holding in longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - Nov 03
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Thursday, 18 December 2003
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Fund Manager Comment
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Market Review
The UK economy continued to strengthen, with even the battered manufacturing sector benefiting from stronger demand in the US and Asia. The one drag on economic growth, however, is the weak level in demand in Europe - the UK's principal trading partner. In response to record consumer debt and a surging housing sector, the Monetary Policy Committee (MPC) increased UK interest rates by 0.25% at the start of the month. To steady investor nerves that this didn't automatically signal further rises, the MPC stressed that it should be sufficient to keep inflation below the government's target of 2.5% throughout 2004. While some investors re-evaluated the likely pace of monetary tightening, the sterling futures market continued to price in the prospect of another 0.25% rate rise by end-December and a 1% increase by September 2004. As a consequence, yields increased along the sterling money market yield curve.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes during November.
Outlook
We intend to increase our holding in longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - Oct 03
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Tuesday, 25 November 2003
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Fund Manager Comment
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Market Review
The sterling money market was influenced by events in the US where cash yields were pushed higher by a mix of stronger economic data and optimism that a global recovery was finally under way. In addition, yields also came under upward pressure from the Monetary Policy Committee's (MPC) decision to raise interest rates by 0.25% Although this rise had already been factored in by investors, the prospect of further tightening suddenly became much more tangible. The MPC defended its decision given the strength of the housing sector and record consumer debt levels. However, it also sounded a cautious note to play down bond market fears that this would be of the first of several rate hikes. Demonstrating heightened expectations of further rate rises, the sterling futures market continued to price in a further 0.25% rate hike for December of this year and a 1% hike by this time next June.
Fund Review
The fund remained invested in high yielding cash deposits and floating rate notes during October.
Outlook
The fund manager's intend to increase the funds holding in longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - September 2003
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Tuesday, 21 October 2003
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Fund Manager Comment
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Market Review
The sterling money market was influenced by events in the US where cash yields were pushed higher by a mix of stronger economic data and optimism that a global recovery was finally under way. This was reflected in the sterling futures market, which has priced in the probability of a 0.25% rise in base rates by the end of December. At its monthly meeting, the Monetary Policy Committee (MPC) left rates on hold. However, many investors have already began to factor in the effect of monetary tightening and are regarding each new release of positive economic data as a potential excuse to raise interest rates. As a result, yields on cash instruments of all maturities rose during the month
Fund Review
The fund remained invested in high yielding cash deposits and floating rate notes during September.
Outlook
We intend to increase our holding in longer-dated paper, while continuing to search for tactical trading opportunities along the yield curve.
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Aviva GBP Reserve comment - June 2003
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Monday, 11 August 2003
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Fund Manager Comment
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Market Review
Sterling money market yields were only marginally lower on the month. The Monetary Policy Committee decided to leave interest rates on hold given the recent depreciation of sterling and only modest signs of consumers' willingness to cut back on personal borrowing. Despite this, the sterling futures market continued to price in a high probability of an interest rate cut by September. Yields on short-dated instruments exceeded those of longer dated paper, as cash investors waited for a further rate cut before buying longer-dated paper at cheaper levels.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes during June.
Outlook
Our internal forecasts point to 0.25% of further easing this year to bring UK interest rates down to 3.5%. Under this scenario, we expect to continue to bias the short end of the sterling cash market. Investing in short-dated notes not only enables us to compound interest every time we roll over our positions, but short-dated rates also tend to be more volatile providing us with opportunities to trade on market movements.
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Privilege Sterling Reserve name change
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Monday, 30 June 2003
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Official Announcement
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With effect from 1 July 2003, the Privilege Portfolio Sterling Reserve Fund changed its name to Aviva GBP Reserve Fund.
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Privilege Sterling Reserve comment - March 2003
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Wednesday, 23 April 2003
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Fund Manager Comment
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Market Review
While the uncertainty associated with war seems to be evaporating, the increasingly negative tone of economic data has begun to challenge any assumption of a quick pick-up in global growth. This led to rising expectations of further monetary easing, as the sterling futures market continued to price in a 0.25% cut in interest rates for later this year. With rates not expected to rise until 2004, demand remained high for short-dated cash instruments.
Fund Review
The Fund remained invested in high yielding cash deposits and floating rate notes during March.
Outlook
Our internal forcasts point to 0.25% of further easing this year to bring UK interest rates down to 3.5%. Under this scenario, we expect to continue to bias the short end of the sterling cash market. Investing in short-dated notes not only enables us to compound interest every time we roll over our positions, but short-dated rates also tend to be more volatile providing us with opportunities to trade on market movements.
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PP Sterling Reserve comment - October 2002
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Tuesday, 26 November 2002
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Fund Manager Comment
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Market Review
Economic activity in the UK remains subdued, despite the stronger tone of recent economic releases. Recent business confidence surveys have pointed to an improvement in the outlook for manufacturing, however, the sector remains deep in recession and this new-found optimism has yet to translate into actual output growth. Corporate profitability remains low and firms have cut back heavily on their investment. This has had an impact across all businesses, including the services sector, which managed to weather the worst of the downturn last year. While household consumption has begun to weaken, historically low interest rates have encouraged a continuing expansion of consumer credit and further price inflation in the housing market. Domestic demand has also been supported by the government, which has significantly increased expenditure on health and education, despite the general weakening in tax revenues. Aside from the housing market, input prices have remained low and have been a key factor in the decision by the Bank of England to maintain interest rates at their current level. Until evidence of stronger growth begins to emerge, this policy stance is unlikely to change. Equity market weakness was the key theme driving the gilt market during June. Disappointing earnings news, compounded by concern over accounting standards at some of the largest corporations in the US, caused confidence in equities to plummet. This led investors to target the relative safety of government bonds and caused yields to trend sharply lower. In addition, longer-dated issues were also supported by the actions of insurance companies, which were forced to rebuild their solvency ratios, in the face of collapsing equity prices. Against this background, long-dated gilts outperformed shorter-dated gilts, as well as index-linked and corporate bonds. Another factor that benefited the long-end of the market was the better than expected monthly inflation data for May, which reported a drop in inflation of 0.5% to 1.8%. This was well within the Bank of England's target inflation ceiling of 2.5% and scaled back expectations for the next interest rate rise.
Fund Review
The Fund remained invested in both high yielding cash deposits and floating rate notes during April. Floating rate notes continue to provide a higher yield than that available on cash instruments at little additional risk.
Outlook
The UK economy is set to gather strength, as the pick-up in the global recovery continues. After six months of subdued growth, the fund managers expect GDP to reach 1.4% this year, followed by a more robust 2.7% in 2003. The fund managers expect the first stage of monetary tightening by the Bank of England to take place in the third quarter, ending the year 75 bps higher at 4.75% In this environment, the fund managers expect yields to trend higher as the bond market responds to the dynamics of an improving economy.
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PP Sterling Reserve comment - September 2002
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Friday, 18 October 2002
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Fund Manager Comment
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The UK economy continues to present a deeply divergent picture, with the services sector showing recent signs of growth, while manufacturing remains deep in recession. As a result of the downturn in global trade and further slides in the international equity markets, business investment has shown a sharp contraction and is unlikely to increase, until bottom-line profitability begins to improve. In the absence of corporate spending, domestic demand has been supported by a combination of consumer and government expenditure. Interest rates are currently at a 38-year low and consumers have used the opportunity to increase their liabilities. Not only has this led to a surge in demand in the housing sector but has also created a dilemma for the Monetary Policy Committee (MPC) during a period of economic weakness - how to stimulate growth without risking the development of an asset price bubble. Alongside relatively buoyant consumer spending, demand has also been supported by government expenditure, which has begun to divert significant resources to the areas of health, education and transport, as it seeks to fulfil its election promises. While this has led to inflation in the public sector, its effect on the overall economy has been muted, due to the deflated prices of many traded goods and services. Against this background, the MPC voted unanimously to keep interest rates on hold at its September meeting, although it did state that it was ready to cut rates should there be a marked deterioration in the global economy. During September the principal drivers of the gilt markets were the slowdown in the global economy and the threat of military action in Iraq. While the UK economy has been able to weather the worst of the economic downturn, the negative tone of economic data releases from the US, alongside further slides in the equity markets sent gilt prices higher. Running parallel to this economic theme has been the importance of political events. With the approach of the anniversary of September 11, positions began to build up at the short-end of the market, as investors began to factor in the possibility of terrorist action. While many of these positions were soon unwound, the growing possibility of conflict in the Middle East led fuelled further demand for short-dated gilts. Although the decision of the MPC to leave interest rates on hold was largely expected, the yield curve steepened, as futures prices continued to reflect expectations of a rate cut in the near term. This view was given further credence by dissension within the Federal Open Market Committee, as two its members argued for further monetary easing. Towards the end of the month, yields were also pushed lower, due to the rebalancing of balanced funds, as fund managers switched out of bonds into equities ahead of quarter-end. With high demand for conventional gilts, index-linked bonds underperformed this asset class, in an environment, which saw little threat from the prospect of inflation. This was one of the prime reasons why, in addition to the low coupon offered, the government auction of the 2% 2035 index-linked bond remained uncovered.
Fund Review
The Fund remained invested in both high yielding cash deposits and floating rate notes during September. Floating rate notes continue to provide a higher yield than that available on cash instruments at little additional risk.
Outlook
With the slowdown in the global economy and the spectre of war in the Middle East, the outlook for the UK economy has become more uncertain. Despite this, we remain confident that the current phase of sluggish growth will feed through to a more balanced recovery in 2003. UK GDP is expected to average 1.4% in 2002, rising to 2.7% the following year. With the global economy set to remain under pressure in the near-term, we do not believe the MPC will risk raising interest rates this year, however, we do forecast 75 basis points of monetary tightening in 2003. Under these conditions, gilt yields are expected to trend upwards in response to a general improvement in the economy, while spreads on sterling corporate debt should tighten.
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PP Sterling Reserve comment - August 2002
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Thursday, 19 September 2002
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Fund Manager Comment
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The general weakening in global economic conditions was underlined by data which showed that manufacturing had fallen at its fastest rate in more than 20 years. Manufacturing, although still in recession, had shown recent signs of increased optimism, however, this sector has been hit hard by some of the fall-off in demand fromboth global and domestic markets. Elsewhere, the service sector showed signs of losing some of its recent momentum, helping to complete a picture of an economy struggling to move forward in difficult conditions. On the positive side inflation remains low, with increasing evidence that the spectre of deflation seems to be finally abating. With firms postponing or cancelling many of their investment decisions, domestic demand has been supported by a combination of government and consumer spending. The Monetary Policy Committee (MPC) of the Bank of England responded to the fragile state of the economy by unanimously voting to keep interest rates on hold, although it did point out that it remained ready to take appropriate action in either direction. One area of concern for the MPC has been the inflationary impact of strong demand in the housing market with its potential to create an asset bubble. However, recent evidence has begun to emerge that some of the strength in this market has diminished, especially in the economically important south-east of the country. Confidence in a recovery took a sharp knock at the start of August, as the increasingly negative tone of economic releases, dragged sentiment lower. In response equity markets fell, while demand for government bonds soared, as the threat of a double-dip recession became ever more tangible. Expectations grew that the Bank of England would be forced to cut base rates to stimulate growth, especially if rate cuts were implemented by the US Federal Reserve and the European Central Bank. However, when the Federal Reserve opted to leave monetary policy unchanged, traders began to unwind many of their positions at the short-end of the market, now that one of the chief sources of rate cut pressure had been removed. While the middle of August saw yields fall to their lowest levels, a series of jerky equity rallies both in Europe and the US eroded some of the gains that the gilt market had made. However, equity strength proved to be short-lived and yields finished the month close to their August lows. In gilts, demand at the long-end of the market was also bid-up by institutional investors who lengthened duration in their long-dated portfolios to counteract the effect of the (8.75%) 2017 gilt dropping out of the FT over 15 year index into the FT 10-15 year index. The forthcoming switch in index for this bond will reduce the average duration of those portfolios, which hold it and, hence, force fund managers to reassess their positions. In addition, the (9.75%) 2002 gilt redeemed, however, this had little real impact on prices, as the majority of the proceeds were reinvested back into short-dated debt. Against this background long-dated bonds outperformed shorter-dated conventional gilts. In the index-linked market, the breakeven inflation rate (between index-linked bonds and conventional gilts) fell below the government's inflation target ceiling of 2.5%, increasing the relative attractiveness of this asset class. Further support also came from inflation, which rebounded from its June low of 1.5% to 2.0%. This emphasised the fact that despite a reduction in inflationary expectations, inflation continues to remain a consideration for investors.
Fund Review
The Fund remained invested in both high yielding cash deposits and floating rate notes during August. Floating rate notes continue to provide a higher yield than that available on cash instruments at little additional risk.
Outlook
While the risk of a double dip recession has increased, the fund managers believe that the economy will continue its patchy path to recovery. Although bond yields are expected to rise in this environment, the fund managers believe the gilt markets will continue to be well supported. Despite some recent strength in the equity markets, there has still not been a wholesale reallocation from fixed income to equities and this is unlikely to happen, until confidence in an economic recovery is firmly established. The other chief factor likely to inform market sentiment is the threat of war in the Middle East, which should support the short-end of the gilt market. Growth should remain subtrend for the rest of this year and the fund managers expect GDP to average 1.7% for 2002. In this environment, the Bank of England is not expected to alter its present policy of keeping rates at their current levels.
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PP Sterling Reserve comment - July 2002
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Thursday, 5 September 2002
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Fund Manager Comment
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Economic activity in the UK remains subdued, despite the stronger tone of recent economic releases. Recent business confidence surveys have pointed to an improvement in the outlook for manufacturing, however, the sector remains deep in recession and this new-found optimism has yet to translate into actual output growth. Corporate profitability remains low and firms have cut back heavily on their investment. This has had an impact across all businesses, including the services sector, which managed to weather the worst of the downturn last year. While household consumption has begun to weaken, historically low interest rates have encouraged a continuing expansion of consumer credit and further price inflation in the housing market. Domestic demand has also been supported by the government, which has significantly increased expenditure on health and education, despite the general weakening in tax revenues. Aside from the housing market, input prices have remained low and this has been a key factor in the decision by the Bank of England to maintain interest rates at their current level. Another consideration, has been the recent slide in the UK and international equity markets, which raised concerns about the sustainability of the current recovery. This policy stance is unlikely to change, until evidence of stronger growth emerges. The key driving force behind the gilt market during July was ongoing weakness in equities. The effect of this was mitigated however, at the start of the month, by the stronger tone of economic data, which suggested that the recovery was well on track. This contributed to some fears that the Monetary Policy Committee would re-evaluate its current cautious stance and raise interest rates to constrain a surging housing market. As the month progressed however, a combination of poor corporate governance and weak profitability in the US, triggered further sharp falls in the equity markets and led to increased demand for government bonds, especially at the short-end of the yield curve. Gordon Brown, the Chancellor of the Exchequer, announced a substantial increase in government spending, however, this failed to have a significant impact on the market, as it had already absorbed the larger macroeconomic picture in the April budget. Inflation figures were also released, which showed that inflation at 1.5% had dropped to its lowest level in 27 years. Towards the end of the month, some of the gains that the gilt market had made were eroded as the major UK and international equity indices recovered some of their lost ground. Despite this, gilts remained well supported, especially at the short-end of the market, as investors sought liquidity and safety of capital against a background of uncertainty in the financial markets. During the period, UK gilts strongly outperformed index-linked gilts, due to the collapse in inflationary expectations and also due to the higher yield offered by conventional gilts.
The Fund remained invested in both high yielding cash deposits and floating rate notes during July. Floating rate notes continue to provide a higher yield than that available on cash instruments at little additional risk.
The current uncertainty in the financial markets and a weakening in demand in the major European and US markets has set the tone for monetary policy and the Bank of England is not expected to raise interest rates until the new year. While the prospect of a double-dip recession has increased, we believe that the UK economy will gradually improve and expect growth for this year to reach 1.7%. This is likely to be supported by strong public spending, alongside an improvement in the service and manufacturing sectors. Gilt yields are expected to trend higher in the near-term, as a result of an improving economy and return to confidence in the equity markets.
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