Liontrust GF Short Dated Corporate Bond Fund

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

*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.