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| Manager Comments | Morphic's performance report for the month noted that once again the market mood was dictated by activities in the US. This month the concern was whether the House of Representatives would approve an increase in the total amount of debt the government could issue, and pass resolutions allowing a new budget for the year. Amid intense brinkmanship, global equity markets sold off, followed by a sharp rally when President Obama stared down the House, and the spectre of a US default on its debt faded. The Fund started the month with hedges in place for a worst case outcome on the US budget face-off. As it became clear the market was mispricing the prospect of a last minute deal, the Manager bought call options on US markets, which soared when the President prevailed. The Fund ended the period still underweight the US and overweight Japan, Europe and Emerging Market - and fully invested, but not without some caution after the strong returns of global markets year to date and with some signs of frothiness in valuations now appearing. The most likely trigger for a sell-off would seem to be a resurgence of anxiety about US monetary policy. To mitigate this risk the Manager has established a number of short term positions over US fixed income futures. As any tightening in US monetary policy will probably see the US dollar rise, the Manager has hedged part of the Fund's European exposure back in US dollars. The Fund's largest equity exposure by sector is to Financials, and geographically to North America, followed by Western Europe and Asia. At month end there was no active commodity exposure, and no active credit positions. |
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