History will show that August was positive for global equity investors. However, this disguised some meaningful divergences in performances. Emerging markets, resources and property fell, some materially, while mature markets and financial companies rallied. Even allowing for a degree of mean reversion, these moves would appear perverse and were accompanied by light holiday-related volumes. In addition, the moves were magnified by the continuing de-leveraging of hedge funds – a number of whom were ‘playing’ the long commodity / short financial trade.
More pronounced were the moves in the currency markets where the US Dollar, long seen as a safe haven, strengthened at the expense of Sterling and, to a lesser extent, the other major currencies. This overall perceived ‘flight to safety’ – i.e. into US assets – is strange as, economically, the US is by no means out of the woods.
With investment trust discounts widening, there is no shortage of attractive opportunities. However, we remain cautious and have only made additions to the Fund where we are confident of not only underlying fundamentals but also absolute price progression.
Fixed Interest & Cash
With current uncertainty over the direction of domestic inflation and therefore interest rates we are deliberately avoiding the bond market for the time being, preferring high interest cash deposits from a range of UK banks.
The Fund’s portfolio is structured into five broad themes. Specialist investments include those exposed to specific industries or areas such as Eastern Europe or emerging markets. Property exposure is concentrated in emerging Europe and the less mature areas of developed Europe. Hedge funds represent exposure less dependent on stockmarket direction. Funds with investments in resources cover a broad range of commodities both in exploration and production. Private equity exposure is targeted towards those funds in the realisation phase of the private equity cycle.