February 2010
The FTSE All-Share Index fell by 3.2% in January on a total return basis as concerns regarding European sovereign risk, bank regulation and the potential for China to tighten monetary policy combined to heighten risk aversion. As a consequence, commodity prices fell sharply with the mining sector falling by nearly 10% and closely followed by the basic material sector. In contrast, more defensive areas of the market, for example, tobacco performed relatively better.
The FTSE SmallCap and 250 Indices outperformed the FTSE 100 over the month, as a result of their limited mining exposure.
Economic data remained mixed domestically. The economy emerged from recession during the fourth quarter of 2009, ending six consecutive quarter of decline, expanding by a lower than expected by 0.1% during the period. The Monetary Policy Committee maintaining both interest rates at 0.5% and the scale of quantitative easing at £200 billion. CPI inflation increased sharply to 2.9% in December partly due to the base effects of a year earlier. On a positive note, the number of people unemployed fell by 7,000 in the three months to November representing an unemployment rate of 7.8%.
The month was a quiet period in terms of trading. We took profits in Mothercare following the sharp rise in its share price. In order to increase the level of income for the Trust we continued to write options with calls in BP, Persimmon, GKN and AMEC, and puts in National Grid, Vodafone and Provident Financial, amongst others.
Although conditions remain very accommodative, at some stage both monetary and fiscal stimuli will need to be withdrawn and in a number of cases reversed. We remain cognisant that the market may not necessarily be factoring in the full implications of this. We believe that 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, in the longer term, attractively valued and maintain strong business models.
Source: Monthly Factsheet Aberdeen Asset Managers Limited