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 a fixed income. This fund invests in corporate, green, and social bonds, and bonds issued by the UK government known as Gilts. 

Economic outlook 

The latest economic data showed mixed signals. In the US, service sector activity improved in March, but manufacturing fell back as temporary pre-tariff demand faded. Business confidence declined sharply. In the eurozone, business activity increased for the third straight month, though concerns around trade and inflation remain high. The UK saw a modest uptick in business confidence, while Japan’s economy showed signs of weakness, with the first decline in business activity in five months. 

We anticipate that economic growth will stay low across developed economies in 2025. In the eurozone, growth should pick up slightly thanks to monetary easing, but will still be below historical averages. The US economy has shown resilience but may slow later this year as uncertainty weighs on business and consumer sentiment. 

In the UK, growth is expected to remain modest. The country has so far been largely excluded from the latest round of US tariffs, which could provide a small boost to exports. Japan, after a flat 2024, may see some recovery this year, though risks from trade tensions remain. 

Central banks and bond yields 

Central banks faced elevated uncertainty throughout the quarter, largely due to the policy shifts and tariff threats from the US. The Federal Reserve left interest rates unchanged but downgraded its growth forecast and raised its inflation outlook. The European Central Bank cut rates again, though officials appeared more cautious. The Bank of England cut rates once during the quarter and then held steady, as it weighed the impact of rising inflation and weak growth. 

Bond markets were volatile. In Europe, 10-year government bond yields rose significantly in response to new fiscal spending plans and geopolitical uncertainty. In contrast, US 10-year yields fell slightly, as inflation concerns were offset by fears of weaker growth. In the UK, the 10-year Gilt yield rose only marginally. 

Inflation outlook 

Headline inflation is expected to gradually decline in the UK, US, and eurozone, but the path may be uneven. Tariffs and increased government spending could push prices up in the short term, especially in import-heavy economies. Core inflation remains sticky, particularly in the services sector. 

While we expect the overall trend to be disinflationary, there are upside risks. A more entrenched trade conflict or continued fiscal stimulus could reverse recent progress in bringing inflation down. 

Performance update 

The Triodos Sterling Bond Impact Fund delivered a positive return of 0.7% over the first quarter of 2025 (before fees), though it lagged in its reference index. 

The fund’s longer duration compared to the index resulted in a slight negative impact, as the yield curve bear-steepened (longer-term rates rose more than short-term rates). The fund’s overweight position in corporate bonds and underweight in Gilts also detracted from performance. Additionally, the fund’s focus on higher-quality corporates meant it did not benefit as much from the rally in lower-rated credit and financials. 

All major bond segments in the index performed positively during the quarter, with UK Treasuries leading due to their shorter duration. Gilt yields rose only slightly, limiting gains from UK government bonds. 

The fund currently yields 4.6% (variable and not guaranteed). With interest rates stabilising and inflation starting to ease, we believe this may be a good time for long-term investors to revisit bonds as part of a balanced portfolio. 

Return

Calendar year return

As of 31/03/2025

Calendar year return

Benchmark: Bloomberg Barclays UK Gilt 1–5-year Total Return Unhedged GBP index (50%) and the Bloomberg Barclays Sterling Non-Gilts Total Return Value Unhedged GBP index (50%). Returns incorporate the ongoing charges, but do not take into account the impact of the annual service charge on the performance of your investment.