The Liontrust GF Global Short Dated Corporate Bond Fund (C5 share class) returned 1.6%* in sterling terms in Q2 2025, while the ICE BofA 1-3 Year Global Corporate Index (USD hedged) comparator benchmark returned 1.6%. The Fund’s primary US dollar share class (B5) returned 1.6%.
The yield carry on the Fund was the largest driver of the total return during the quarter. The overall market impact was low. Incremental performance was added through numerous positions; bond selection and allocation were positive, rates positions were mixed.
Market backdrop
The second quarter of 2025 was dominated by the intensifying drama of US tariff policy. President Trump’s unilateral escalation of import tariffs, culminating in the self-declared “Liberation Day” package, sent shockwaves through financial markets in April.
In May, a landmark ruling from the US Court of International Trade declared several of Trump’s tariffs unlawful under the legal Act used to implement them. Though the administration filed an appeal and received a temporary reprieve, this ruling underscores the legal fragility of some elements of the current trade policy. However, numerous legislative routes remain open, meaning any legal impediments would be most likely to only delay final trade agreements but not alter their content.
While intended as a mechanism for trade rebalancing, these tariffs are functionally a domestic tax on US consumers and represent a serious drag on global growth, given the US consumer’s centrality to global demand. The inflationary impact is expected to be a one-off rise in prices; there would only be persistence if wage pressures responded. The risk of a broader inflationary impulse lies in the strength of the labour market, which, although weakening, still holds the key to whether tariff-driven price increases will bleed into services inflation.
The Federal Reserve maintained a consistent “wait and see” posture throughout the quarter, leaving rates unchanged in its 4.25%–4.50% range. The Fed's Summary of Economic Projections (SEP) in June continued to show two rate cuts in 2025 as the median forecast, but with growing division among Federal Open Market Committee (FOMC) members. Chair Powell emphasised that these projections are tentative and data-driven, stressing that any judgment on the durability of the tariff-driven inflationary impulse would require more evidence.
Despite pressure from President Trump, including hostile social media posts targeting Powell, the Fed signalled no shift toward political accommodation. In fact, market pricing and the Fed’s current stance remain largely aligned, with the next cut expected around September or October. However, the underlying trigger for cuts remains tied to labour market weakness rather than political commentary.
The Bank of England cut rates by 25bps in May and held steady at 4.25% in June. The Monetary Policy Committee (MPC) remains anchored to its “gradual and careful” approach, interpreted by markets as signalling one rate cut per quarter. The vote splits revealed an evenly balanced committee with growing concern over emerging labour market slack. There is now mounting internal discussion about the possibility of accelerating the easing cycle if further weakening in employment and services inflation materialises. June’s meeting also confirmed that UK monetary policy remains restrictive in the Bank of England’s eyes, though MPC members disagree on how restrictive it still is.
The ECB delivered a 25bps cut in June, taking its deposit rate to 2.0%, but offered a nuanced message that balanced dovish gestures with hawkish caveats. Downward revisions to near-term inflation were driven largely by energy and foreign exchange assumptions, while medium-term core inflation and growth remained intact. There is some implicit fiscal support from defence and infrastructure spending baked into medium-term forecasts, particularly for 2026–27.
President Lagarde noted that the ECB is now “well positioned” to navigate the evolving landscape, and emphasised that monetary policy is nearing the end of its post-shock normalisation cycle. Market participants interpreted the decision as leaving room for one more cut later in 2025. A July move appears unlikely barring a significant deterioration in data.
The bond markets continued to grapple with the fallout from trade tensions and rising fiscal concerns. US Treasury market volatility surged in April, partly due to the unwinding of highly leveraged “basis trades,” arbitrage positions exposed to large margin calls amid spikes in volatility. With total estimated exposure of around $1trillion, the systemic risk of this activity became temporarily visible, contributing to a steepening of the yield curve.
Yield curve steepening was a theme during the quarter due to the aforementioned fears about US central bank independence and broader fiscal sustainability. Bond vigilantes, those market participants who demand higher yields to fund government excesses, appeared to stir from a long slumber. The implied message from markets was clear: any threats to Federal Reserve independence or lack of fiscal discipline will be met with higher yields and tighter financial conditions.
The second quarter of 2025 underscored the complexity of the current macroeconomic environment. The intersection of trade policy, legal ambiguity, central bank credibility, fiscal strain, and geopolitical instability is shaping a precarious path for markets and policymakers alike.
For now, the consensus trajectory among major central banks is toward cautious, data-dependent rate cuts, but with a high bar for acceleration. The labour market, particularly in the US and UK, remains the critical channel through which short-term price shocks might either dissipate or become entrenched. With volatility heightened and policy signals blurred by politics, investors should brace for an extended period of uncertainty and be wary of extrapolating short-term moves into long-term trends.
Fund performance
Short dated corporate bonds
We split the Fund into those bonds which qualify for our strict criteria as short dated corporate bonds, namely less than 5 years to legal maturity for bonds issued by corporate issuers and less than 3 years for financial, and three additional performance sources. However, it is worth emphasising we manage the Fund’s positioning and risk in its entirety.
The yield carry on the Fund was the largest driver of the total return during the quarter, while the overall market impact was low. Incremental performance was added through numerous positions; bond selection and allocation were positive, rates positions were mixed.
Alpha sources
Rates
We believed the yield curve steepening during the period to have moved too quickly and was due to rebound. A yield curve flattening position was implemented going long US 30-year bond futures and short the same duration equivalent of US 5-year bond futures. Unfortunately, the yield curve continued to steepen and the position hit our 10 basis points sell discipline level so was closed out.
Being long duration, relative to our neutral of 1.5 years of exposure, was beneficial with the Fund spending most of the quarter with approximately 2.25 years of exposure. Government bond yields at the short-dated end of the market finished the quarter close to unchanged; it was the yield carry that created the benefit. Furthermore, we also actively adjusted duration, taking 0.25 years out in late April and adding back in mid-May which made the Fund five basis points.
Allocation
In the first quarter we entered into a decompression trade between two European credit default swap indices. We went long risk (sold protection) iTraxx Europe, which is the broad 125 name index including some financials, and short risk iTraxx senior financials, which is the 30 name pure financials index at the senior attachment point. Within credit, financials tend to be higher beta (they have been since the financial crisis) given the systemic nature of the sector and the high bond index weightings. This cheap insurance against any deterioration in market sentiment proved to be beneficial in the turmoil that followed Trump’s Liberation Day pronouncements. The position was closed out a few days later having made a little under ten basis points. Towards the end of May the differential between the two indices had compressed so far again that we have put the position back on.
Selection
Stock selection was a positive contributor to performance during the quarter. Within short-dated credit, spread movements were subdued. There were only a few bonds that contributed two basis points of excess return and none more than four basis points; the outperformers were HP, Heimstaden Bostad, Weir, and Enel. In other credit, which we call Selection, Standard Chartered was a small positive driver and Global Switch was a tiny laggard.
The Fund saw good inflows during the quarter with new additions within short-dated corporate bonds including Visa, Tyco Electronics, Woodside, Pershing Square, and Fiserv. One 10-year maturity bond was also purchased, issued by the company Resolution Life; the bonds are cheap given the impending takeover of the company by higher rated Nippon Life.
Discrete years' performance (%) to previous quarter-end:
Past performance does not predict future returns
|
|
Jun-25 |
Jun-24 |
Jun-23 |
Jun-22 |
Jun-21 |
|
Liontrust GF Global Short Dated Bond C5 Acc GBP |
6.6% |
6.7% |
2.5% |
-5.6% |
1.5% |
|
IA Targeted Absolute Return |
6.7% |
6.2% |
0.9% |
-4.1% |
1.9% |
|
|
Jun-20 |
|
|
|
|
|
Liontrust GF Global Short Dated Bond C5 Acc GBP |
2.1% |
|
|
|
|
|
IA Targeted Absolute Return |
2.3% |
|
|
|
|
*Source: Financial Express, as at 30.06.25, total return (net of fees and interest reinvested), C5 class. Discrete data is not available for ten full 12-month periods due to the launch date of the portfolio.
Liontrust GF Global Short Dated Corporate Bond Fund
(Liontrust GF Absolute Return Bond Fund)
KEY RISKS
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.
The fund manager considers environmental, social and governance (""ESG"") characteristics of issuers when selecting investments for the Fund. Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay. The Fund can invest in derivatives. Derivatives are used to protect against currency, credit or interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The Fund uses derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash. The Fund invests in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short term. The Fund may encounter liquidity constraints from time to time. Participation rates on advertised volumes could fall reflecting the less liquid nature of the current market conditions. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. There is no guarantee that an absolute return will be generated over a rolling 12 month period or any other time period.
DISCLAIMER
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 www.liontrust.co.uk 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.
