In spite of positive returns in the three months to January 31, S&P says managers are concerned about valuations. Many are particularly worried about the possibility that lower-rated investment-grade credits are overpriced, according to the report.Several managers have also revised their outlook for interest rates this year. This is because of a slight pick-up in the economy and the possibility of an increase in inflation. Many now see an interest-rate rise as likely. As a result of these concerns, S&P says several managers plan to move up the credit scale through the purchase of higher-quality floating-rate notes, sovereign debt and supranationals. Most managers remain happy with the credit fundamentals on corporate bonds. Many are expecting demand to remain strong this year with no significant increase in new issuance, according to the report. S&P lists the Old Mutual Corporate Bond fund, managed by Stephen Snowden, as its top performer among UK fixed interest funds over the period. The Gartmore Corporate Bond fund, managed by Alix Stewart, also had top-quartile performance at the end of 2004 and into the first month of the year. Both managers have run their respective funds for the last year. The Henderson UK Gilt fund, managed by Steve Skinner, was the top performer in the UK Gilt Sector over the period, according to S&P.