October 2008
The FTSE All-Share Index ended September over 13% lower in a torrid month for equities.
Systemic risk concerns rose to the fore during the month with the bankruptcy of Lehman
Brothers and the effective nationalisation of Fannie Mae, Freddie Mac and AIG in the United
States. While in Europe authorities were forced to act in Germany, the Benelux and Iceland.
In the UK, the issues were manifested in the nationalisation of the Bradford & Bingley.
Commodity prices fell sharply reflecting concerns over global growth and the unwinding of
leveraged positions. Reflecting this, the Mining sector performed extremely poorly during the
month while unsurprisingly the more defensive areas of the market such as the Food & Drug
Retail and Tobacco sectors outperformed.
Domestic economic news flow continued to be weak. CPI inflation hit 4.7% in August
prompting the MPC to leave interest rates unchanged at 5% at their September meeting
although David Blanchflower remained a lone voice on the MPC calling for a 50bp rate cut.
The PMI survey data for both manufacturing and services were lower than expected. House
prices continued to fall with the Nationwide reporting a monthly decrease of 1.7% during
September, the 11th month of falls resulting in an annual decline of 12.4%.
We used the weakness in the market to top up attractively valued core holdings including
Tesco, Venture Production and Millennium & Copthorne. In addition, we initiated a small
position in Rolls-Royce. We feel that despite the weak operating environment, the company
which has an experienced management team, long order book and strong balance sheet had
been unjustifiably sold down given its longer term prospects. The purchases were partly funded
by the disposal of the holding in HMV that had performed very strongly on a relative basis. We
also sold our put protection that was due to expire in the middle of the month and reinvested
part of these proceeds while also purchasing a new put at a lower level (since the month end
this has also been sold). Finally, we purchased a reverse convertible in HSBC which generates
additional income for the Trust.
Volatility is likely to remain a significant characteristic of the market, however, where
opportunities present themselves we will continue to add to our holdings which we believe are
attractively valued.
At the close of business on 7 October 2008 the Company no longer has any portfolio protection.
Source: Monthly Factsheet Aberdeen Asset Managers Limited