Keep in mind that our commentary on the fund, as well as its past performance, is not a guarantee of what will happen in the future. It is also not financial advice - you should consider talking to a professional adviser if you’re not sure whether an investment is right for you.

These investments are designed to be held for the long term. Like all investments, your money is at risk - investments can go down as well as up, currency fluctuations can affect the value of your investment, and you may not get back what you put in.

How does the fund work?

The Triodos Sterling Bond Impact Fund aims to generate a positive impact on society and the environment, whilst also generating a stable income, by investing in a portfolio of bonds.

Bonds are investments that represent a loan made that is paid back to the investor. They pay a fixed rate of interest on the loan over a set period, meaning the investor gets fixed income. This fund invests in corporate, green and social bonds, and bonds issued by the UK government known as gilts.

Current economic outlook

Bond yields fell during the quarter as we saw the Bank of England base rate cut to 4.75%.

In September, the Bank of England kept policy rates stable. The September meeting minutes indicated that there were “a range of views" across the members on both how the outlook is developing and the path for policy going forward. Short-end bonds have trended down this year and the market has priced in some more rate cuts.

We think the market is pricing in too many rate cuts. We also believe that longer term bond yields will trend down now that inflation has fallen. But it is plausible that as policy rates come down, and economic activity and monetary policy ‘normalise’, term premium (i.e. higher yields for longer-term bonds) might start to build again. With the chance that this could erode some of the potential gains, we think a neutral stance is appropriate.

We are neutral in bonds, seeing neither significant upside or downside risk, in line with our balanced assessment of the global economy over the coming months. We believe that long-term yields will lower slightly over the next half year, as rate cut cycles proceed and inflation falls, which should provide some capital gains for bond investors. At the same time, we expect this drop to be modest as some rate cuts are already expected and bonds are priced accordingly.

Furthermore, we expect that as long as interest rates come down gradually, some term premium for longer term bonds will build again, which could be good news for investors.

Performance update

Triodos Sterling Bond Impact Fund returned 2.11% this quarter (gross of fees), slightly underperforming its benchmark. All the types of bonds held performed well, with corporate bonds being the best category.

Calendar year return

Bond yields have declined due to many central banks, including the Bank of England, cutting policy rates because of lower inflation.

Like all investments, your capital is at risk - investments can go down as well as up, currency fluctuations can affect the value of your investment and you may not get back what you put in.

You should ask an independent financial advisor if you're unsure which investment is right for you. Triodos Bank doesn’t offer financial advice.