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| Manager Comments | The Fund amplified its holding in Wells Fargo through a series of short dated call options ahead of the unveiling of a US regulatory report on the capacity of the industry and individual banks to absorb economic shocks. The Manager was confirmed in its expectation that positive results would drive a sharp re-rating, as they have in the past. The Fund also made further gains on a short position in a Hong Kong listed global retailer and its long position in Irish listed cardboard box maker Smurfit Kappa. Stock losers were led by Chinese electric bike battery maker, Tianneng Power, where the market reacted badly to signs of margin pressure despite strong sales growth. The Fund also saw losses in India’s J&K Bank; and Hong Kong property company Emperor and US car parts maker TRW. All except J&K were exited during the month. Gains on market index exposures to Mexico and Turkey were slightly more than offset by losses in Thailand, China and Hong Kong. All of the latter were closed out in the month. Market tone was again dominated by uncertainty in Europe, this time caused by negotiations for a financial bail-out for Cyprus, which included a controversial levy on local bank depositors. As a precaution the Manager trimmed the Fund’s overall exposure, especially to Europe and the Euro, when the Cyprus bail-out terms were first announced. However this proved costly as markets shrugged off these concerns, and the US hit new highs towards the end of the month. Although the Manager partially rebuilt the Fund’s market exposure as its initial concerns about the ramifications of the Cyprus ‘rescue’ package seemed overblown, the Fund’s net investment level remained slightly lower at month end than at the beginning. Within this, the Fund is overweight Japan and the US, and underweight Europe. The Manager’s conviction about the sustainability of recent gains is ebbing as global market returns become increasingly dependent on the US despite deteriorating earnings revisions and economic data there. The Fund remains un-hedged into Australian dollars. The Manager believes slowing mining capital expenditure and falling commodity prices limit the risk of the dollar breaking out of its current range of US$1.02 to US$1.05 even if the RBA makes no further rate cuts. Some of the fund’s yen and Euro exposure is hedged into US dollars. |
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