June saw a sharp sell-off in global markets, with falls in UK shares focusing particularly on financials and consumer cyclicals. This followed a deterioration in banking conditions, and a recognition that many companies would be calling on shareholders for additional finance. The FTSE All-Share Index fell 7.1% to take its decline for the first half of 2008 to -11.2%. SVM UK Active Fund's hedging combined with favourable stock selection, helped offset part of this weakness and it was down 3.0% on the month, and -4.0% for the six months (NAV total return).
The Fund entered June with negligible net exposure to financials and consumer sectors. Hedging (short) positions in HBOS, Wolseley, Investec and Northern Foods all contributed strongly as those share prices fell. Over the month, this helped to offset weakness in some of the smaller companies held in the portfolio. There was a strong performance from Randgold Resources as the gold price recovered, and also on further good drilling news from Tullow Oil. During the month, further reductions were made in smaller company exposure.
The Fund continues with effective stockmarket exposure close to the 75% normal lower level set by investment policy. There is an emphasis on resources, utilities and tobacco. We believe that the economic outlook is deteriorating and plan to remain positioned defensively.
Source for all figures; SVM to 30.06.08 on TR basis.
Support Services
As companies increasingly concentrate on their core competencies, demand for support services has risen. In particular, those supporting the oil industry have benefited from the upturn in the cost of crude oil and historical underinvestment in infrastructure. These companies are better equipped to carry out non-core activities for clients and have seen sales and margins rise sharply.