Market Update: Fed Rate Rise Reinforces a Supportive Backdrop for Defined Return Strategies

For financial adviser use only

Last week was an important week for markets as the Federal Reserve raised interest rates by 25 basis points, its first increase since 2023. While the move reflects ongoing concern around inflation, the Fed also pointed to the resilience of the US economy, citing solid economic activity, strong productivity and robust capital investment. Equity markets have remained resilient against this backdrop, and we continue to see a constructive environment into year-end, albeit with the potential for periods of volatility as markets adjust to the prospect of rates remaining higher for longer.

For the Causeway Dynamic Growth Fund and the Levendi Thornbridge Defined Return Fund, this combination of resilient equity markets and higher interest rates remains particularly supportive for new investment opportunities.

Recent market conditions have allowed us to replace maturing positions with attractive coupons while maintaining defensive autocall and capital-protection barriers, as demonstrated by the investments added to the portfolios over the past two weeks. Importantly, both Funds have continued to deliver strong risk-adjusted returns over the past year, with relatively low realised volatility.

We believe the current environment therefore remains favourable for the strategy: higher rates improve the terms available on new investments, while the defensive structure of the portfolios provides a meaningful buffer against more moderate equity-market weakness.

For full performance data and portfolio detail, advisers can view the latest factsheets for the Causeway Dynamic Growth Fund and the Levendi Thornbridge Defined Return Fund.

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