The UK All-Share index returned a negative 7.1% during the month. Mid and small cap companies were particularly badly hit as risk aversion increased as several companies started to report increased evidence that the economy is slowing more sharply than previously thought. Credit yield spreads widened appreciably during the month.
The resource sectors continued to power ahead as the oil price made new highs and other commodity prices (such as copper) were also firm. Perhaps more interestingly, the Pharmaceutical sector has started to do better following a significant period of underperformance. News flow out of the house builders, general retailers and financials continues to be very weak and this was reflected in these sectors' poor performance.
Unsurprisingly, some of the Fund’s holdings in resource stocks did well. Thus Wood Group, Anglo American and Tullow Oil all performed creditably. However, some of the Fund’s small cap resource stocks (eg. Jubilee Platinum and Hambledon Mining) performed poorly as the aversion to small companies continued to outweigh robust fundamentals.
The Fund’s position in Prudential was sold on concerns that its excellent Asian franchise which has previously been seen as a strength would begin to count against it. The news that its orphan estate would not be distributed to shareholders came out after the stock was sold. A position in Randgold Resources was initiated after the share experienced a significant pull back from its highs.
Source; Lipper Hindsight to 30.06.08.
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.