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 delivering a stable income, by investing in a diversified portfolio of bonds.

Unlike shares, bonds are loans made to companies or governments. These loans pay a fixed rate of interest over a set period, offering a regular income. The fund invests in corporate bonds, green and social bonds, and UK government bonds (Gilts), with a focus on higher-impact issuers.

Economic and market context 

Bond markets continued to navigate a complex environment in the second quarter of 2025, with economic data offering a mix of optimism and caution.

In the US, inflation remained sticky (persistently high), but economic data pointed to slower growth ahead. The Federal Reserve kept rates on hold but hinted at potential easing later in the year. In Europe, the ECB continued to signal a more cautious stance despite ongoing rate cuts, while in the UK, the Bank of England also paused after one cut in Q1, balancing weak growth with persistent inflationary pressure.

Yields across most developed bond markets responded to this backdrop. In contrast to the previous quarter, the yield curve “bull steepened” as long-term yields rising slightly more than short-term ones, often a sign of improving market sentiment about future growth.

Credit markets rallied, with corporate bonds among the top-performing segments, as spreads compressed. Gilts posted positive, but more modest, returns due to lower relative demand and supply dynamics.

Performance update 

The Triodos Sterling Bond Impact Fund posted a positive return of 2.51% over the second quarter of 2025 (gross of fees), outperforming its benchmark by 16 basis points.

Investments which contributed to performance

Vodafone: Bonds increased in value after the company announced a buyback of some longer-term debt. The impact score, which indicates positive social and environmental contributions, is 51%, mainly reflecting the company’s work on digital inclusion in Africa and Asia.

Pearson:Social bond with a 100% impact score. The bond’s value rose due to the sector’s resilience and strong demand. Proceeds support free virtual education via Connections Academy.

BT Group: Outperformed peers due to curve flattening. Impact score: 60%, reflecting its role in digital inclusion through telecom infrastructure.

Vonovia: Benefited from improved sentiment towards real estate, interest rate expectations, and investor repositioning. Impact score: 49%, supporting affordable and energy-efficient housing in Europe.

Severn Trent: Sustainability bond (100% impact score) supported by improved regulatory clarity and solid earnings. Proceeds fund sustainable water cycle projects.

Return

As of 30/06/2025

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.

Looking ahead

The outlook for bond markets remains uncertain but potentially constructive. If inflation continues to ease and interest rates begin to fall in late 2025 or early 2026, high-quality bonds – particularly those with longer duration and strong ESG profiles – may see further upside.

The fund continues to invest in bonds that contribute to a more sustainable and inclusive future, focusing on companies and institutions that align with Triodos' mission of using finance for positive change.