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, while also generating a stable income, by investing in a portfolio of bonds.

Bonds are different from shares, as they represent a loan made to an organisation. 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.

Fourth quarter market overview and current economic outlook

Global equity markets showed modest growth in Q4 2024, as the MSCI World Index increased, driven mainly by the continued strength of the US dollar. Early in this quarter, investors were cautious due to uncertainties surrounding the US election and concerns over the extent of the Federal Reserve's rate cuts. However, the November election of Donald Trump boosted optimism, particularly in US markets, with expectations for tax cuts and deregulation. Outside the US, markets were less optimistic, especially with fears over potential US import tariffs. Business surveys revealed the US economy outperformed others, while the eurozone, UK, and Japan showed signs of stagnation. Manufacturing Product Manager’s Index (PMI) for major economies ended the year in decline, but the eurozone's services PMI improved.

Central banks and bond yields

The Federal Reserve, European Central Bank (ECB), and Bank of England (BoE) all cut rates in Q4, but their outlooks were varied. The Fed suggested fewer rate cuts in 2025, while the ECB lowered its growth forecast due to possible US tariffs. The BoE kept rates steady in Q4, concerned about inflation. Bond yields rose across major economies, especially in the US and UK, due to inflation fears and reduced recession fears.

Inflation outlook

Inflation in the eurozone, UK, and US has been falling for several months now, and we expect this will continue, but it will take time, and there may be months where it stays the same or goes up slightly. In the eurozone, inflation is getting close to the 2% target, and core inflation (which doesn’t include things like food and energy) is at 2.7% and still falling. In the US and UK, core inflation is higher, but it should slowly decrease. The biggest risks to inflation are global issues such as political instability and trade, which could lead to supply shortages. In the eurozone and UK, we expect people to spend less, which will keep inflation and overall economic growth low.

Economic growth to stay low

We expect some small improvement in the economy in the eurozone, but it will still be lower than historical standards. The rate cuts in Europe should help support growth. In the US, the economy is still strong, but growth is expected to slow in 2025, though the US will still grow faster than other regions. The UK has started to recover from low growth in 2023, but growth will remain low in 2025, though it will be better than in 2024. In Japan, we saw little growth in 2024, but a stronger rebound is expected in 2025.

Performance update

The Triodos Sterling Bond Impact Fund performed broadly in line with its sector in the fourth quarter (before fees). Many bond prices dropped as markets stopped expecting interest rate cuts, and corporate bonds lost value because of bad market sentiment. The fund did well because it had fewer Gilts and more corporate bonds. However, the choice of bonds hurt performance because the fund focused on higher-quality ones, which did not do as well. The fund also suffered from having slightly longer-term bonds.

The fund currently yields 4.9% (variable and not guaranteed). Now that interest rates have peaked in the UK and started to fall we believe this could be a good opportunity to look more closely at bonds.

Read our latest article on why now could be a good time to invest in bonds.

Return

Calendar year return

As of 31/01/2025