Liontrust GF Global Short Dated Corporate Bond Fund

The Liontrust GF Global Short Dated Corporate Bond Fund (C5 share class) returned 1.1%* in sterling terms in Q4 2025, while the ICE BofA 1-3 Year Global Corporate Index (GBP hedged) comparator benchmark returned 1.1%. The Fund’s primary US dollar share class (B5) returned 1.1%.

Returns were fairly consistent month by month, but there was a degree of underlying volatility within a range as markets fluctuated around the path for base rates. The yield carry on the Fund was the largest driver of the total return during the quarter, whilst euro denominated bond exposure was a small drag. 

Market backdrop

Notably, short-dated bonds outperformed as the market moved to pricing out future interest rate cuts. For example, two-year US government bond yields ended the quarter ~12bps lower, while 10yr bonds ended up 2bps higher, i.e. the curve ‘twist’ steepened. US ten-year bonds traded in a range of 3.95% to 4.19%, ending the quarter close to the upper end of the range. A big driver of the steam coming out of future interest rate cut expectations was delayed economic data released by the US post the government shutdown showing continued mixed signals on the health of the US jobs market, which is generally holding up better than the bond market had been expecting. The Fed cut rates for the third time this year in December (to 3.75–4.00%) but signalled a pause in January, citing labour softness and sticky inflation. 

The (under) performance of European government bonds is also worth highlighting. Ten-year bund yields started the period at 2.71% and ended at 2.85%, with interest rate hike expectations building going into 2026 (the short end was similarly higher). The ECB held rates at 2% for a fourth meeting, projecting 2025 growth at 1.4%. Hawkish commentary from Isabel Schnabel reinforced market expectations that the next move could be a hike in late 2026 with inflation sticky a little above target. 

In the UK, the BoE cut rates by 25bps to 3.75% in December (5–4 vote), citing easing inflation (CPI 3.2%) and rising unemployment (5.1%). Governor Bailey stressed that further cuts will be gradual. Fiscal credibility concerns persisted post-Budget, with gilt yields volatile.

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 five years to legal maturity for bonds issued by corporate issuers and less than three 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, as usual, the largest driver of the total return during the quarter, with few examples of individual bonds adding or detracting materially to performance in the period.  

Alpha sources

Rates

The impact of duration was mixed during the quarter. The Fund’s exposure to UK duration was beneficial, with gilt yields lower due to a reduction in fiscal concerns from a high base, albeit there is still plenty of work to be done by the government to get the full faith of the gilt market. This impact of UK rates was evident in returns both in sterling-denominated credit and a long position in UK gilt futures. 

The US curve was notably steeper, as future interest rate cuts were priced out of the market, meaning the Fund benefitted at the stock level and the hedge we have in the ten-year treasury note neither helped nor hindered returns materially.  

With a significant proportion of credit in the fund denominated in euros, there is a natural exposure to European rates, which were notably weaker during the period. The under-performance of bunds was partially mitigated by a hedge in German five-year futures. 

The Fund finished the quarter with 2.06 years of duration split between 0.82 years in the US and 0.87 in Europe, and 0.37 years in the UK.

Allocation

The Fund retains its decompression trade between two European credit default swap indices. We are long risk (have 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 done 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 had a one basis point cost during the quarter, with credit spreads at such tight levels we maintain the position given its attractive risk/reward profile. 

Selection

Standard Chartered bonds added ~3.5bps of value. On the negative side, BNP and Global Switch were very small negative detractors, which was mainly driven by European rates softness rather than credit spread.

We note a new sub investment grade-rated idea that was actually a small drag in the quarter (1bp). We purchased bonds issued by Kennedy Wilson, a US/Canadian real estate company. KW is more than just a landlord and developer, with various service-related fee generation levers. It is part-owned by Fairfax, an investment grade Canadian company that has been likened to Berkshire Hathaway and a holding already in the Fund. Fairfax and the current CEO are attempting a ‘take private’ of the company that would see it owned by Fairfax. We purchased bonds for the fund ~95 cash price. If the deal does not complete then KW bonds could trade back to ~91, but if it does complete then could trade above par. We like risk reward balance as even if it doesn’t complete; this is a strong expression of underlying value from the people who know that company best. We purchased the bonds with a spread to maturity of 250bps and is a 1% position in the Fund and is the only high yield holding.

The Fund also took a new (carry) holding in Lineage, an investment grade rated company in the industrial logistics (particularly cold storage) part of the real estate market. We bought a longer dated new issue, viewing the ~120bps spread on the existing 2030 dollar bond as attractive. 

Outlook

Spreads remain tight with, for example, the Global 1-3 year index spread at 58bps, close to the lows of the 53-146bps range of the last three years. With the path of interest rates being a real source of push and pull in markets, we view roughly 4% yield in short dated corporate bonds as an attractive source of carry in a highly uncertain environment. 

Generally speaking, we are expressing a modest positive view on duration in portfolios based on valuation, but we recognise the risk that inflation is indeed sticky, the job market deterioration continues to be very slow and financial markets in general are not constraining economic activity. In this backdrop, we believe the extra carry in quality corporate debt is worthwhile, despite the clear tightness in spreads versus history. 

Discrete years' performance (%) to previous quarter-end:

Past performance does not predict future returns

*Source: Financial Express, as at 31.12.25, 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.