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Ashburton Global Sterling Total Return Bond Fund - News
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Ashburton Glbl Strlng Tot Ret Bond comment -Sep 11
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Thursday, 29 December 2011
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Fund Manager Comment
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Review
World bond markets continued to rally throughout the month of September as risky assets declined. This saw the Citigroup world global government bond index post a return of +1.1% (in local currency terms). Our Total Return Bond Funds struggled against their respective benchmarks and both posted negative returns. Our corporate debt holdings, emerging market currency exposure combined with our short duration (relative to benchmark) for our government bond holdings all contributed to our underperformance during September. During September the long anticipated 'operation twist' was announced where the Fed will swap shorter maturities for longer term Treasuries. The expectation of this alone has been enough to push longer-term yields lower and to flatten the curve. The operation is expected to be focused in the 10-year area as this is where mortgages are priced against and most corporate borrowing occurs. The amount of the operation will be $400bn and the Fed will also recycle maturing mortgage debt into the mortgage market. Weaker global growth estimates combined with a plethora of disappointing economic data and negotiations on the EFSF expansion all weighed on the equity market and other risky assets. The MSCI world index was down a further 6% in September (in local currency terms) and both investment grade and high yield corporate spreads widened over the month. Elsewhere, the Swiss National Bank (SNB) decided to cap the franc's rate for the first time since 1978. The SNB said that it is "prepared to buy foreign currency in unlimited quantities" to keep the euro above 1.20 francs. Not surprisingly the Swiss franc was the biggest loser in the G-10 currency space over the month falling over 6.5% and 12% versus the EUR and USD respectively. The dollar saw a continued flight to quality pushing the US dollar index up nearly 6% in September. Emerging market currencies were hit especially hard in the month.
Activity
Our trading activity during September was light. We switched out of our EIB issues and switched the proceeds into KFW government guaranteed paper of similar maturity. In addition we purchased a small weighting in a long dated UK inflation linked bond with real yield of 0.40% (above prevailing UK RPI rate). This bond has performed well, rising nearly 3% over the month. We also increased exposure to Mexican local currency debt (via the 10-year benchmark issue). Following the recent sell-off we view the currency as attractive, while recent benign inflation readings suggest potential for curve flattening to occur over time.
Outlook
Investors remain extremely concerned over the European sovereign debt crisis, the risk of recession in the US and Europe and fears that Chinese growth will suffer a hard landing in 2012. As these fears have become acute in recent months, risk assets have sold-off sharply including equities, high yield corporate credit and emerging market assets. By contrast, perceived 'safe' government bond markets, such as the US, Japan, Germany or the UK, now offer extremely low yields by historical standards (lower than expected inflation in many cases). Low bond yields in the major markets may be rationalized by an expectation of low interest rates, but even so, generally offer little margin for error. While markets are likely to remain volatile until some of the above concerns have been addressed, the recent sell-off does provide some interesting opportunities. In particular, where we feel currencies or bond markets oversold in emerging markets, we will look to pick-up value. In developed markets, we believe US corporate bonds represent good value given the strength of corporate balance sheets. Despite the strong rally, we still see some value left in UK inflation-protected gilts. Given the prospects for weak growth and low inflation in the euro-area over the medium-term, German bunds are likely to remain at low yields. We view the immediate risk to German bonds from the introduction of Euro-bonds to be very limited, since any move to a full fiscal union in Europe will likely take many years. Currency positions in the Funds (outside base) remain skewed towards emerging Asia where we see good medium-term value.
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Ashburton Glbl Strlng Tot Ret Bond comment -Jun 11
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Monday, 12 September 2011
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Fund Manager Comment
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Review
Global government bonds took a breather during June after their good performance during May. Our Dollar Total Return Bond Fund marginally lagged the benchmark (both posting modest negative returns on the month) whilst the Sterling Fund was up +0.5% versus the benchmark of -0.1%. Greece dominated proceedings and sentiment throughout June. The yield on the Greek 10 year bond reached a record level of 17.95% on increased speculation of default. Moody's set the ball rolling downgrading the country 3 notches to Caa1 and still on negative outlook. Mid-month saw Standard and Poor's downgrade them to their lowest rating for a sovereign to CCC-. Their EUR 80bn facility was extended from 4.5 years to 7.5 years and the government survived a no confidence vote even though a dissenter in the ruling party was removed. At the end of the month Standard and Poor's stated that the French solution of a debt rollover would put the sovereign debt on 'selective default' as it offers creditors 'less value than the promise of the original securities'. UK Gilts and US Treasuries rallied throughout the majority of June, driven by a slew of downbeat domestic and international data releases. However, they gave up all of their gains during the last three trading days after the Greek package was approved, which sparked a rally in equities and other riskier assets pushing bond yields higher. Elsewhere, corporate and emerging market credit underperformed as spreads widened with increased volatility in light of the Greek crisis. India raised rates by 0.25% to 7.5% on inflation concerns whilst the Reserve Bank of Australia kept rates on hold at 4.75%. The Swiss franc continued its recent run of strength and was the best performing G10 currency over the month, whilst sterling was bottom of the pile, falling over 2% against the US dollar.
Activity
Other than increasing our corporate debt weighting by a small amount, no major strategy changes were undertaken during the month of June for our Funds.
Outlook
Markets have battled with a number of concerns lately: Europe's sovereign debt crisis, concerns over the Chinese growth/policy tightening mix, doubts over the sustainability of US growth and renewed concern over the US budget situation. These worries have created a major headwind for risk assets and supported supposed safe havens of German, US and UK government bonds. We believe the current soft-patch in global growth will be transitory as the effects of a high oil price and Japan-related production disruption ease. But there are significant risks to this view. The European debt situation is most worrying, in particular recent contagion to Italy. While Italy is better placed than the current bailout recipients (Greece, Portugal and Ireland) the size of the country's debt market poses a systemic risk. Even though Italy's primary budget balance is in surplus, once sovereigns are under attack a self-fulfilling panic cannot be ruled out requiring a more aggressive policy response. It is inevitable that Greece will not be able to honour its debt in full and on-time, thereby requiring a restructuring of sorts either via lengthening maturities or reducing principal and/or interest payments or some combination of the above. The troika (EU, IMF, ECB) will continue to provide assistance but a long-term solution is still lacking. The 'band-aid' solutions in place so far in Europe make for an unstable equilibrium. Developed market sovereign debt exposure in our Funds is concentrated in Germany, the US and the UK, with emerging sovereign (or quasi-sovereign) exposure to Korea, Mexico, South Africa, Turkey and Singapore. We have no direct exposure to the peripheral European sovereign countries under pressure currently. Otherwise, we maintain exposure to corporate credit risk (mainly investment grade but also some high-yield debt) which we believe looks relatively attractive. While interest rate tightening cycles have been delayed at the margin by recent weak data, we see only low returns from government bonds over the coming months. Our aim remains to outperform the global government bond indices by identifying relative value opportunities across the different regions and segments of bond markets using our top-down investment process.
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Ashburton Glbl Strlng Tot Ret Bond comment -Mar 11
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Tuesday, 24 May 2011
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Fund Manager Comment
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Review
Bonds ended March only marginally changed, masking sizeable intra-month volatility. Overall, the Citigroup bond index fell 0.14% over the month (in local currency terms) with the 2-10yr differential for the G4 majors showing a flattening bias. Our Dollar and Sterling Total Return Bond Funds faired significantly better than the benchmark, posting monthly returns of +0.42% and +0.65% respectively. Following a reasonably sedate month-end, the first week of March got off to a volatile start, with the market closing lower. The sell-off accelerated despite a weaker-than-expected Services PMI data in the UK and comments from ECB President Trichet that the Governing Council would exercise "strong vigilance" indicative of an imminent rate hike. This forced the market lower, however, UK Gilts showed a strong cross-market performance, particularly versus German bunds. This extended into the weekend, with gilts rallying across the curve outright, somewhat surprisingly considering the US employment report surprised to the upside. The second week started quietly, with an absence of notable data or events, the MPC kept rates and QE unchanged which was widely expected. Weak US data and a downgrade of Spain by Moody's helped to push yields lower in the major markets. However, on Friday 11 March, the market opened to news of the earthquake and tsunami in Japan, which sparked a rally in bonds. Over the weekend, the severity of the situation in Japan spurred an extension of the flight-to-quality bid, driving global 10 year yields lower as the Nikkei stock index plummeted over 10%. During the final weeks yields backed up to the levels seen at the start of the month as investors were quick to take profits and switch back into riskier asset classes. Elsewhere, corporate and emerging market credit underperformed as spreads widened. The euro was the outperformer in the currency markets, whilst the yen understandably lost ground versus the majors on the back of the devastating events in Japan.
Activity
Activity during March was relatively light. We modestly increased our exposure in emerging market and corporate debt, and trimmed duration marginally. On the currency front we took a small exposure in the Indian Rupee given its favourable carry and recent underperformance.
Outlook
Policy rates in the major developed economies are expected to remain low, even if the first hikes take place this year (e.g. ECB, BoE). Forward-looking markets have already begun to price in rate increases and we expect the ECB to raise rates in April. Recent events in Japan are a great human tragedy, although at this point in time we do not think that they will have a prolonged negative effect on the global economy. Given the steepness of yield curves in the UK and US we have not changed our view in taking preference for taking duration risk at the long-end of the curve. The case for high yield bonds continues to look relatively attractive on a risk/ reward basis. While spreads are now slightly below the long-term average, default rates in 2011 are projected to be 1% (compared to 4% average). We continue to favour corporate bonds and selected emerging markets, the latter accounting for roughly 24% of NAV currently. We have not changed our structural long-term view on emerging Asian currencies and feel these will outperform the majors over a 1 to 3 year time horizon, hence the current 12-15% exposure. The Funds also have approximately 5% exposure to the Mexican peso currently which we believe is relatively attractive on the grounds of bond market carry.
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Ashburton Glbl Strlng Tot Ret Bond comment -Sep 10
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Wednesday, 27 October 2010
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Fund Manager Comment
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Review
Global bond markets underwent a corrective phase during September, after their stellar performance in August lost momentum. The Citigroup global bond index finished down -0.4% on the month (local currency terms) as investor demand for risky assets picked up. Global equities were the main beneficiary and enjoyed a stunning month, closing up 6.8% (in local currency terms). Corporate and emerging market bonds also performed well as spreads tightened moderately over the month. UK gilts and German bonds performed poorly over the month, as did US treasuries, albeit by a lesser degree. As a result, 10- year yields, which plummeted to new lows during August, reversed after investors switched from the safe haven of bonds into equities and commodities. In the currency markets, the US dollar was the worst performing G-10 currency during August, on speculation that further quantitative easing by the Federal Reserve will reduce the purchasing power of the Greenback. The Swedish krona and Australian dollar were the top two performing major currencies (up 9.5% and 9.0% respectively versus the US dollar), whilst the perceived defensive currencies such as the Swiss franc and the yen underperformed. Strong performances were also seen by the major Asian currencies such as the Korean won and Taiwanese dollar. Despite the lacklustre performance of the global bond markets, our Total Return Bond Funds posted positive returns over the month with minimal volatility. Our dollar-based service finished 0.8% up on the month whilst the sterling Fund gained 0.1%.
Activity
There was a small amount of activity in September. We closed out our short dated Canadian government bond holdings at a decent profit, after benefiting from the fall in 2-year Canadian yields since April this year. Exposure to a variety of corporate bonds was also increased during the month. Currency strategy was unchanged during September. We continued to hold our long position in a basket of Asian currencies (Korean won, Taiwanese dollar and Indian rupee) for the dollar Fund, whilst being fully hedged back into base currency for our sterling-based service.
Outlook
In our view, US Treasuries (especially short-to-mid maturities) generally offer poor value currently, relative to other asset classes such as equities or sub-investment grade corporate bonds. The expectation of prolonged low short rates may prove correct, but in the event will provide little return - an unattractive expected return profile. Treasury inflation protected securities (TIPS) look reasonably priced relative to nominal Treasuries. Those worried about an extreme inflation outcome, but uncertain whether it will be deflation or high inflation, may find newly-issued TIPS relatively attractive, given their asymmetric properties with regard to inflation. TIPS principal is redeemed at par in the event of accumulated deflation. The TIPS curve is steep at the long-end. Since real interest rates tend to fall in recessions and rise during booms, TIPS should theoretically offer attractive diversification within a portfolio. The steep TIPS curve therefore makes long-dated TIPS relatively attractive which is why we continue to hold these in our bond Funds. At current yields, we do not expect high future returns from fixed income markets in general, but will continue to seek opportunities to generate a steady, positive return for the Funds overall with limited risk.
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Fund Name Changed
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Monday, 25 October 2010
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Official Announcement
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The Ashburton Global Sterling Managed Income Fund will change it's name to Ashburton Global Sterling Total Return Bond Fund, effective from 25 October 2010
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Ashburton Global Sterling Man Inc comment - Jun 10
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Tuesday, 7 September 2010
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Fund Manager Comment
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Review
Financial markets remained highly volatile in June. Existing concerns over European sovereign finances and policy tightening in China were compounded by some weaker than expected US data, leading investors to question the sustainability of the recovery. While equity markets sold off, government bonds in the largest economies benefited from a flight to safety and also the prospect of ongoing low interest rates. The Citigroup global government bond index rallied 0.74% (local currency) on the month. High Yield and investment grade credit underperformed the rally in government bonds. Risk spreads for weaker peripheral European governments remained elevated. Across the major currency markets, the yen and Swiss franc both strengthened, benefiting from safe haven status, while the euro remained weak and the dollar fell with equity markets of fears of a slowing economy.
Activity
There was very little activity in the funds in June. Since concerns of a double-dip recession are already reflected in prices we see little value in most government bonds hence the continued low duration of the funds. Following a period of significant US dollar strength we added some exposure to the Swedish Krona during June, which has been weak of late despite strong economic data. Sterling-based funds continue to be almost entirely hedged back to base currency which has proved to be advantageous in recent weeks on the back of a stronger pound.
Outlook
Investor sentiment has become extremely pessimistic on the outlook for the global economy and risky assets in recent weeks. In our view, this is likely to be an overreaction - double-dip recessions are very rare, and recent data (while disappointing) as yet suggest nothing more than a modest slowdown. That said, the world's developed economies suffer from some severe structural fragilities which pose a risk to the sustainability of recovery. Moreover, the recent trend towards fiscal austerity limits the options for policymakers to re-stimulate growth should a relapse occur. But in our view, a double dip recession remains a possibility not a probability. How should fixed income investors position themselves in the current context? Safe haven assets such as US treasuries or German bunds offer little value, and will only provide adequate returns if a double-dip becomes a reality. As such we are maintained a low duration in the Funds. Riskier assets such as corporate bonds now offer more attractive potential returns and we maintain exposure to this area. Currency exposures are low currently given the extreme moves in markets, although we believe trading opportunities will present themselves. The current volatile backdrop is likely to provide a number of investment opportunities in the coming months and maintaining a nimble and opportunistic approach will be key to generating decent returns.
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Ashburton Global Sterling Man Inc comment - Mar 10
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Wednesday, 12 May 2010
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Fund Manager Comment
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Review
The concerns that had lately weighed on markets gently ebbed away in March as optimism for global growth returned. Global equities enjoyed a very strong month, rising over 6%. Emerging market and high-yield corporate bonds also performed strongly, with investment grade corporate bonds outperforming modestly. Strong US economic data and concerns over the amount of required debt issuance sent US treasury yields higher and prices lower. Global government bonds delivered zero return on the month. Emerging market currencies exhibited broad strength on the month, while among developed markets the Canadian and Australian dollars were strong and the Japanese yen notably weak. Our Fixed Income Funds had a steady month, delivering returns of around 0.7%. Currency exposure to Asia boosted returns modestly. Exposure to high-yield (added in February), investment grade corporate and emerging market bonds was also beneficial as spreads narrowed. Conservative positioning with regard to US interest rate risk limited downside from rising Treasury yields. Volatility of our Fixed Income Funds continues to be in range of 2% on a rolling 200-day basis.
Activity
Turnover in our Fixed Income Funds was very low in March. We closed out a position added in late December in UK 10-year gilts following some near-term strength. We added modestly to emerging market and investment grade bonds late in the month. Following a significant increase in US bond yields in March we anticipate adding some duration risk in the coming weeks. Currency strategy for US$ Funds was little changed on the month as the Funds continue to hold modest positions in the Indian rupee, Korean won and Taiwanese dollar. Following a period of material weakness in the pound, currency exposure in Sterling Funds was returned almost entirely to base as positions in the Indian rupee and Australian dollar were closed out.
Outlook
Our global macro views have changed very little over the past few months. We continue to believe that the global economy is entering a sustainable recovery and is likely to prove more resilient than most observers anticipate. We expect the incoming data to support this view during the second quarter. A positive macro backdrop should be broadly supportive of spread tightening for high yield, investment grade corporate and emerging market bonds. It would also suggest upward pressure on government bond yields, especially at short/mid maturities in the US in particular. Given the steepness of the US curve and following recent weakness, we believe longerdated US Treasuries are looking more attractive now and we expect the curve to flatten. Similarly, implied real yields on long -dated inflation-protected Treasuries above 2% are decent value. During the past month there has been a material widening of bond yield differentials between the US and core Euro-zone markets. For this reason, we no longer view European government bonds as obviously more attractive than US treasuries, especially at the long-end. The differential between US and German bond yields at the 30-year maturity is larger than at any point in the past decade. Overall, we expect to increase the duration of the fund modestly over the coming weeks following the rise in US yields. Our strategy will continue to emphasise diversification across government, inflation-protected, corporate and emerging market bonds in areas where we believe attractive opportunities exist. At the overall fund level, we continue to focus on delivering positive total returns in excess of cash rates with low volatility.
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Ashburton Global Sterling Man Inc comment - Sep 09
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Wednesday, 9 December 2009
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Fund Manager Comment
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Review
September provided the fourth consecutive month of strong government bond market returns with the Citigroup Global Bond Index up 0.5% in local currency terms. Despite fears over historic market weakness in September, riskier asset classes also continued to perform well with global equities up 2.9% in local currency terms, and the iBoxx US dollar corporate bond index up 2.1%. Emerging market bonds performed strongly, with the JP Morgan Global EMBI Diversified Index up 4.9% on the month in US dollar terms. The strong performance of both government bonds and equities concurrently since July has generated much debate among market participants. A combination of factors appears to be driving this recent trend: (i) bonds were very oversold and arguably undervalued in June and have therefore managed to perform despite an improving growth backdrop, (ii) yield curves are extremely steep and an expectation of sustained low cash rates is pulling down the required yield on longer maturity bonds, (iii) stronger economic growth reduces the tail risk that governments need to implement even more drastic stimulus measures and (iv) inflation pressures are muted in the near-term. Arguments focused on 'abundant liquidity' and the effects of quantitative easing are effectively the same as explanation (ii) above. The dollar and British pound were the clear losers over the month with commodity currencies, emerging markets and the Japanese yen the standout performers. Much of the recent weakness in these two currencies can be attributed to dovish central bank commentaries and an expectation of continued loose monetary policies.
Activity
There was relatively little activity in the Fund in September, having reduced interest rate risk and raised cash levels in August. As indicated last month, we did take a further 4% exposure to Australian bonds (through futures) early in the month. We did, however, also take sizeable positions during the month in Australian-government-guaranteed bonds issued in US dollars which offer material spreads in excess of US treasuries (for no added fundamental risk, in our view). In order to capture the spread on these bonds without taking on interest rate risk we also added equivalent short US treasury futures positions. Cash weightings at month-end were approximately 10% for Sterling Funds and 17% for US dollar Funds at month-end. Our currency strategy remains unchanged with the Sterling Funds maintained in base currency and the US dollar Funds taking 5% exposure to the Taiwanese dollar.
Outlook
As we wrote last month, a commitment to low central bank rates in the largest economies combined with steep yield curves and limited inflationary pressures is supporting government bond prices currently. These pressures may continue for a while, but if we are right that momentum in terms of cyclical economic recovery gradually builds, we would expect bond yields to remain range-bound or drift higher over the coming months. The major turning point for the bond market may not arrive until central banks seem certain to hike rates, however, something that seems several months away. Structurally, we believe longer-dated bonds are more attractive than 2-year bonds, which we believe are at risk from an interest-rate shock sometime in the next six months. However, longer-dated bonds will initially struggle to deliver positive returns if short-dated yields begin to rise. Our core bond market views are unchanged. We believe European and Australian bonds discount overly aggressive rate hike expectations and are therefore relatively attractive. We believe long-dated US TIPS offer reasonable value at around 2% real yields, and are better value than conventional US treasuries. And we believe improving macro data will be generally supportive of credit markets and emerging market bonds over the coming months, although spreads have narrowed significantly already.
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Ashburton Global Sterling Man Inc comment - Jun 09
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Tuesday, 15 September 2009
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Fund Manager Comment
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Review
Global government bonds were weak performers in the second quarter, falling -0.8% in hedged US dollar terms. Eurozone government bonds outperformed, rising 0.6% in local currency terms. US treasuries were particularly weak, falling - 3.1% on the quarter. Several issues contributed to weak government bond market performance in the quarter: improving economic conditions, fears over government debt issuance, concerns over long-term inflation and the potential for overseas central banks to diversify away from US treasuries were important themes. On the quarter, world equities delivered very strong returns ( 19.7%), but were down modestly in June (-0.6%). Commodities continued their recent trend of appreciation, with the oil price up over 5% in June, taking the quarter's gain to 40.7%. In tune with strong equity market performance, corporate bonds also rose strongly, up over 8% in the eurozone and over 9% in the US. The primary trend in currency markets over the second quarter was dollar weakness, with commodity and 'riskier' currencies (e.g. Australasian currencies and sterling) strong performers. Broadly speaking, economic data continued to show an abatement of the global recession although the current economic backdrop remains weak and recovery fragile. Relative to US and UK data releases, European data in June was disappointing. Chinese data continues to point to a recovery in growth, although market sentiment reflects widespread uncertainty of how sustainable government-led growth will be. From the portfolio's perspective, the decision to increase the maturity profile of the bond holdings in May and June (through German 30-year bonds, US 20-year TIPS and US 10-year treasuries) contributed positively to June's performance. The earlier decisions to keep the maturity profile short and take on some modest currency exposure outside of US dollars in April and May also contributed to outperformance versus the benchmarks.
Activity
Following a strategic decision to lengthen bond maturities in May through US 20-year TIPS and German 30-year government bonds, trading activity was relatively low in June. We added a 6% weighting to US 10-year treasuries around 11 June on the basis that the recent weakness in US bonds was overdone. This position was closed out on 26 June for a gain of 3.4%. In June, other modest changes included purchasing BP and Heinz corporate bonds, and selling a HSBC governmentguaranteed bond and the Norwegian government 2-year bond (since we no longer plan to take on Norwegian krone exposure in the portfolio). In May, we increased our exposure to US inflation-linked bonds (TIPS) to 12% on the basis that April's sell-off in this market created a compelling entry level for investors willing to take a multi-month position. Our TIPS holdings are concentrated at the 20-year maturity, which we believe is the most attractive maturity on offer currently. We also added exposure to 30-year German government bonds on weakness. Again, we believe yields in the region of 4.25 - 4.50% are very attractive for this asset given likely low inflation in Europe and an expected long period of very low interest rates. After closing out an aggregate 10% currency exposure to sterling and the Norwegian krone on the 20th May, currency exposure has been maintained 95% in US dollars. In May, currency strategy provided a positive offset to bond market weakness during the month (approximately a contribution of 0.33% to the month's performance).
Outlook
At the end of the first quarter, the portfolio was concentrated in short-dated bonds to reduce the risk from rising bond yields, with a regional bias to European bonds. This reflected a cautious view on the bond market, which proved correct over the quarter. We had also begun to build a holding in investment grade corporate bonds and believed that supranational bonds were also relatively attractive (bonds issued by the likes of the World Bank, Inter-American Development Bank or European Investment Bank). In May, we increased the portfolio's maturity on the basis that the sell-off in bonds was overdone. In last month's Outlook we wrote, "While some bond market weakness can be explained by improving economic conditions, the severity of recent declines is suggestive of panic. Much of the recent weakness has been rationalised by fears over (i) increased government bond issuance, (ii) the potential inflationary consequences of current monetary policies around the world and (iii) concerns that overseas central banks will diversify away from US treasuries. We believe these fears are overdone." (For further explanation of this view, please see the previous month's commentary). The rally in bonds since mid-June has been almost as abrupt as the previous decline. For example, the rise in 2-year bond yields in the US, UK and European bonds has been entirely reversed. Longer maturity yields are more attractive than at the end of the first quarter, but no longer offer the outstanding opportunity they did during June, such is the pace of recent market moves. As we wrote in May, expected bond returns for the next six months are better now than at the start of the year (or indeed at the end of last quarter). This explains the modest increase in maturity profile. However, we will continue to manage the portfolio with an absolute return mindset and will manage risks accordingly. The strategy with regards to supranational and corporate bonds is unchanged from that outlined in recent reports.
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Ashburton Global Sterling Man Inc comment - Mar 09
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Friday, 15 May 2009
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Fund Manager Comment
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Review
The first week of March saw continued selling pressure for global equities which forced many of the world's major stock indices down to levels not seen since the mid 90s. The main catalyst, unsurprisingly, was the continuing bleak US economic data; mortgage delinquencies increased, construction projects fell twice as much as forecast and the unemployment rate hit 8.1%. Moreover, AIG (One of the biggest US insurance groups) reported the largest corporate loss in US history at $61.7bn.
Despite the dreadful economic data flow and faltering equity markets bond yields remained fairly stable. That was until 18 March when the FOMC announced a decision to increase the size the Fed's balance sheet further by purchasing $750bn of agency mortgage backed securities. To help in the private credit markets the committee also decided to purchase up to $300bn of longer term Treasury securities over the next 6 months. This forced bond yields to tumble and provided solace for the equity markets with the MSCI world equity index finishing the month up over 7%.
Corporate bonds were mixed. Investment-grade, non-financial bonds outperformed with spreads tightening from extreme levels reached late last year. Financial sector bonds performed very poorly reflecting investor concerns over the magnitude of losses yet to be reported. Inflation-linked bonds outperformed as expectations for a prolonged period of deflation, which had been built into this market, moderated over the month. The Credit Suisse US TIPS (Treasury Inflation Protected Securities) Index was up 5.7% on month.
Activity
Our bond exposure remains predominantly in European and US highly-rated government, government-guaranteed and supra-national issues with maturities less 5 years. After a strong run, we sold our holdings in inflation-linked bonds in early February. We re-entered this market in March and following a strong bounce on the announcement that the Federal Reserve would be buying TIPS among other US bonds (18 March) closed out our position again at a healthy profit.
During the month, we reduced exposure to financial sector bonds/floating rate notes in order to reduce portfolio risk. At the same time, we began to accumulate a diversified holding of highly-rated, non-financial corporate bonds. So far, we have accumulated a weighting of approximately 2.0% including bonds issued by companies such as: BP PLC, Royal Dutch Shell PLC, BG Group PLC, British American Tobacco PLC, France Telecom SA and Telefonica SA.
We have begun to reduce our allocation to government bonds. With the announcement of quantitative easing (central bank purchases of government bonds) in the US and UK, much of the good news is now in the price.
While keeping currency exposures largely in base currency, we have profited from strength in the Norwegian krone. After a strong run in the krone, we have greatly reduced this position recently, but we are likely to look for a future attractive entry point given the country's superior economic fundamentals.
Outlook
Based on the IMF's forecasts, in 2009 the global economy will experience the sharpest economic contraction post WWII. With inflation falling and interest rates very low, this is a benign backdrop for government bond markets. Moreover, in order to stimulate economic growth, various central banks around the world have begun to follow a strategy of Quantitative Easing (QE) - the purchase of government bonds with newly created money.
Much of this good news is in the price, however. US treasuries are trading close to their lowest yields in decades. European government bonds offer better value and should also benefit from the likelihood that any European economic recovery will lag that of the rest of the world. This explains our regional bond weighting in favour of Europe.
Better value opportunities are on offer within the corporate bond market. A combination of financial sector de-leveraging and severe economic weakness pushed corporate bond spreads to their highest levels since the 1930s late last year. While spreads have narrowed so far in 2009, they remain very wide by historical standards. We believe high quality investment grade bonds offer attractive rewards relative to the risk of default and have therefore begun to build a diversified holding in this asset class. We also continue to hold supranational bonds (i.e. EIB, KfW and World Bank) which we believe offer attractive spreads over government bonds.
We stress, however, that we are not looking to move into the High Yield or Junk Bond market. While yields are higher still in this asset class, so is the expected level of defaults. We do not believe High Yield corporate bonds are appropriate for this Fund.
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Ashburton Global Sterling Man Inc comment - Dec 08
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Wednesday, 25 March 2009
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Fund Manager Comment
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Government bonds continued to rally strongly in December against the backdrop of deteriorating economic data. The US 10yr Treasury yield reached a low of 2.03%, while the 30yr at one point yielded 2.5%.
Our strategy remained broadly defensive in December, positioned mostly in bonds with maturities less than 5 years. We continue to hold weightings in supranational bonds where we believe spreads over government yields are attractive.
Our expectation is that risk assets will outperform government bonds on balance over the year, although volatility is likely to remain high.
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Ashburton Global Sterling Man Inc comment - Sep 08
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Thursday, 30 October 2008
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Fund Manager Comment
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The month of September 2008 will go down in history as one of the most dramatic financial crises of modern times: the S&P500 was down over 9%, volatility spiked to new highs and the yield on the US T-bill dropped as low as 0.25%. Optimism over the bailout of Fannie Mae and Freddie Mac at the start of the month was largely overtaken by fears over growth and the imminent collapse of Lehman Brothers, a large US investment bank. Indeed the demise of Lehman Brothers saw equity markets tumble and bond prices soar as investors flocked to the relative safety of government bonds, unsure which institution would be next in the firing line.
The dollar rally also hit a brick wall, as all thoughts of America leading the world into a recovery phase quickly flew out the window. The financial press were quick to draw parallels to the great depression of the 1930s and the world's policy makers were quick to step in to try and restore confidence. The US government took a series of actions - a US $700bn proposal to address the crisis to buy troubled assets from banks, together with guarantees on money market funds and the banning of short selling financial stocks. This led to a ferocious relief rally as investors poured money into stocks and out of bonds. This was short lived, however, as the initial deal was rejected with the main bugbear for congress being why the US tax payer should take the burden. Subsequently, the deal was reworked and passed on Friday 3 October but failed again to buoy the troubled credit and equity markets
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Ashburton Global Sterling Man Inc comment - Jun 08
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Tuesday, 26 August 2008
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Fund Manager Comment
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With the oil price surging another $10 this month to over $140 barrel, equity markets were hit hard by aggressive selling and the MSCI world index finished down over 8%. June also proved to be a topsy-turvy sort of month for bonds. It started badly, as rising commodity prices finally took their toll on inflationary expectations. European bonds performed particularly badly in this phase, as the European Central Bank surprised everyone and announced their intention to hike interest rates in July, despite clear signs that the Eurozone economy is clearly slowing. The markets quickly moved to discount not just one hike, but several. However, bonds stabilised and recovered in the second half of the month as falling equity markets caused investors to rethink their pessimistic interest rate expectations.
The currency markets also remained focussed on inflation risks and the likely policy response by central bankers during June. The lack of clarity about central banks possible actions has added to investors uncertainty about the outlook for currencies. The most affected currency was the New Zealand dollar which experienced a dramatic sell-off following an explicit statement from the Reserve Bank of New Zealand (RBNZ) that it was likely to cut rates later this year. Despite further poor headlines from the financial sector, sterling held up exceptionally well and was the best performing G10 currency over the month.
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Ashburton Global Sterling Man Inc comment - Mar 08
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Monday, 19 May 2008
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Fund Manager Comment
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"Buy the rumour, sell the fact" is a useful old market adage and so it was with bonds in March. They started the month on a strong note, with buying interest fuelled by the ongoing 'credit crunch' and expectations of further cuts in interest rates, particularly in America. However, prices peaked when the Federal Reserve delivered the expected 0.75% reduction in the Fed Funds rate on 17 March. Investors' appetite for bonds was further curtailed by the Fed's decisive action over Bear Stearns and its decision to broaden the scope of its loan facilities. Net of all these swings, bonds ended the month pretty much where they started it.
March also proved to be a volatile month within the foreign exchange arena. Two to three big figure swings were the norm for most of the major currency pairs highlighting the lack of market direction and general investor uncertainty throughout the global markets. The major FX headline was the move in dollar-yen as the Japanese yen appreciated sharply and moved below the psychologically important 100 level for the first time since 1995. The widely expected rate cut in the US helped to buoy the flagging equity markets and also sparked demand in the higher yielding currencies such as the New Zealand dollar and Australian dollar. However, the Swiss franc has been the top performing G10 currency this year on the back of heightened risk aversion trades and rallied over 4% during March on a basket basis.
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Ashburton Global Sterling Man Inc comment - Dec 07
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Monday, 18 February 2008
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Fund Manager Comment
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Bond yields edged higher in December as central banks stepped up their combined effort to ease the global 'credit crunch'. Not only have interest rates been cut (US, UK and Canada all reduced by 0.25%), but significant amounts of liquidity have been injected to the money markets, more latterly by way of auction. This decisive action has seen inter-bank rates fall significantly and helped to sooth investors' fears regarding the outlook for economic growth. UK bonds were the pick of the bunch, the cooling property market gave rise to hopes that interest rates are set to fall further in the months ahead.
Elsewhere, the currency markets saw the US dollar stabilise whilst sterling sold-off quite dramatically. Vulnerability of the UK to the global credit crunch became ever clearer (Northern Rock, reliance of the economy on the finance sector, overvalued property market and over-geared consumers) meaning sterling weakened substantially, particularly when the monetary Policy Committee sounded a more 'dovish' tone on interest rate policy. During the month of December we built up foreign currency exposure for sterling-based accounts and initiated new long positions in both the Canadian dollar and the euro, both of which returned significant profits. Moreover, we felt the US dollar was due a bounce given that it was technically oversold and very much out of favour. We therefore, reduced foreign currency exposure for our dollar-based services and tentatively introduced a small exposure to the US dollar for sterling-based portfolios.
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Ashburton Global Sterling Man Inc comment - Sep 07
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Wednesday, 24 October 2007
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Fund Manager Comment
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Bond prices ended a topsy-turvy month much where they started it. The bond markets surged in the early part of the month, as the deepening credit crunch fed expectations of dramatic economic slowdown and a general easing in monetary policy. Bond prices essentially peaked on the day that the US Federal Reserve elected to cut interest rates by more than expected (0.5%) and subsequently retraced all of their previous gains.
Our currency strategy worked well for us during the month, having increased our weighting outside base currency for both our sterling and dollar services. Our long positions included the Canadian dollar and Norwegian krone, both of which rallied strongly during the month. The Canadian dollar broke through parity vs the dollar reflecting strong Canadian macroeconomic fundamentals and elevated energy prices. The strengthening krone was also helped by the surging oil price and domestic fundamentals after the Norges Bank raised rates again by 25bps to 5% to help curb rising consumer inflation.
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Ashburton Global Sterling Man Inc comment - Jun 07
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Wednesday, 26 September 2007
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Fund Manager Comment
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Bonds are usually at their best when investors are generally miserable. After all, interest rates usually get reduced when the economy is in trouble. Bonds last day in the sun came in the second half of 2006 when the markets were dogged by concerns about the US deflating property market and what it might mean for the American consumer and the health of the financial system itself. As those fears have dissipated, so bonds have sold off, continuing a negative trend that began as long ago as 2003 in the case of the US bond market. This trend continued in the early half of June as investors finally abandoned all thoughts of US interest rate reductions at least in the near future.
'Carry' remained the dominant theme in the foreign exchange markets, with currencies backed by high/rising interest rates strengthening against those with low/stable interest rates. The big winners were the New Zealand dollar and the Australian dollar and once again, the big loser was the Japanese yen.
Strategy-wise, the average maturity of bonds held within the Fund has been maintained at relatively defensive levels. However, we have recently increased the Fund's exposure to longer-dated (8-10 year) fixed income securities to 20% in anticipation of a short-term recovery in bond prices.
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Ashburton Global Sterling Man Inc comment - Mar 07
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Wednesday, 20 June 2007
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Fund Manager Comment
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For much of February equity markets continued to edge higher, continuing the trend that has been in place since the middle of last year. Then in the final days of the month, markets went abruptly into reverse with many markets dropping 3-4%. The drop in share prices began in China, where official measures to curb illegal speculation led to a dramatic 9% plunge in share prices. Equity markets around the world followed this lead, as rising volatility led to a general loss in risk appetite. Wall Street experienced its biggest one-day fall since the recovery began in 2002.
These developments had a predictable impact on most other assets. Bond prices surged higher, as investors mulled over the message of the stock market correction. Is the US consumer finally in trouble? The 'flight to safety' theme also applied in the currency markets, where the Swiss franc and Japanese yen rebounded following a long period of big losses.
Not everything made complete sense however. If the global economy really is in trouble, one might have expected commodity prices to relapse sharply. But that's not what has happened, at least not yet. Although they eased back a little, they have not fallen sufficiently to damage what is an encouraging technical picture. Perhaps the world isn't coming to an end after all.
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Ashburton Global Sterling Man Inc comment - Dec 06
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Wednesday, 28 February 2007
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Fund Manager Comment
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After rallying during October and November, global bond markets gave up most of their gains during December to finish the quarter relatively unchanged and sentiment levels are now back towards more neutral levels. However, the technical picture suggests bonds are still vulnerable for further losses, at least in the near-term.
The currency markets were dominated by the plight of the US dollar which fell substantially versus both sterling and the euro. The strength of sterling made the dollarĘs fall even more pronounced as cable hit a 14 year high in early December and just shy of the US$ 2.00 level. The yen continued to weaken against the major crosses as traders continued to exploit the carry trade.
During the quarter we conducted several changes to strategy. On the bond front, we switched all of our short-dated US inflation linked securities into the short-end of the UK bond market and later took exposure to the short end of the Norwegian bond market. Elsewhere for currency strategy, we reduced our yen exposure throughout the quarter and switched half of our existing Norwegian krone position into the swiss franc, whilst in December we took euro exposure for all our Managed Income Services.
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Ashburton Global Sterling Man Inc comment - Sep 06
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Wednesday, 29 November 2006
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Fund Manager Comment
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Bond prices bottomed just ahead of the quarter end and rose sharply thereafter, with the US market leading the way (up nearly 4% on the quarter). We took advantage of this rally and took profits on our US bond positions, rotating into some of the laggards: UK bonds, Australian bonds and more recently, US inflation-linked bonds. Although we are nervous about the near-term outlook for bonds, we still believe that the economic slowdown scenario will ultimately see bond prices hit new highs for the year. We are therefore keen to use near-term setbacks to rebuild our exposure.
On the currency front, despite a general move into the higher yielding, higher risk currencies, the US dollar struggled to make headway, registering only a small gain versus the euro. Meanwhile the 'safer' currencies that had performed so well in the first half of 2006 suddenly found themselves out of favour. The yen in particular struggled during the quarter, especially in light of the many developments that we thought would push it higher: Chinese currency revaluation, an end to Japan's zero interest rate policy and a general rise in market volatility. Nonetheless, we remain optimistic that better prospects lie ahead given that: (a) the yen is now very cheap relative to its historical range and Japan's current account balance, (b) investors are massively 'short' and are underestimating the scope for higher interest rates in Japan and crucially, (c) interest rates are gradually peaking in America and elsewhere.
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Ashburton Global Sterling Man Inc comment - Jun 06
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Thursday, 24 August 2006
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Fund Manager Comment
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Economic growth data continued to surprise on the upside around the world in April, causing investors and analysts alike to revise up their forecasts interest rates. Not surprisingly, bonds were under pressure for much of period, particularly at the longer end of yield curves. Bonds were generally range-bound through the month of May, however, the first half of June saw fair amount of volatility in anticipation of the Fed's decision on US interest rates. Despite the Fed raising rates by 25 bps during the last week of June, bonds then rallied as the statement that accompanied the decision suggested that the Fed may end its run of interest rate increases.
The currency markets were dominated by the continuing plight of the US dollar, which registered losses against most currencies except higher yielding currencies like the South African rand and the Brazilian real. Sterling was the surprise winner of the period, with the currency supported by a combination of M&A activity and the resurgent property market. There were a few changes to strategy during the quarter. Following a 2-month period in the Norwegian krona we decide to bank our profit, switching the proceeds into the Swiss franc. An 8% increase in the bond weighting was the only notable strategy change during the month of May, whilst in June increased our bond weighting by a further 18% through the purchase of 10-year fixed paper.
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Ashburton Global Sterling Man Inc comment - Nov 05
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Tuesday, 13 December 2005
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Fund Manager Comment
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Bonds had a slightly better month in November albeit with some added volatility. After touching their highest level since March (4.68%) at the start of the month, US 10 year yields were forced down to 4.50% by the end of November after US treasuries saw increased buying throughout the month. The UK bond market was also particularly strong, finishing the month up over 1%.
The Federal Reserve raised interest rates by a further 25bps at the start of November to 4%. Although this was widely expected and priced into the currency markets the dollar continued to strengthen throughout the month against most of the majors which pushed the dollar index up almost 2% on the month. Despite the dollar being particularly firm, the gold price rallied strongly throughout November and finished the month up nearly 9% touching $500 per ounce.
There were a few changes to our bond strategy during November: at the start of the month we switched our longer dated TIPS into similar dated fixed income securities. Throughout the month we gradually reduced all of our exposure to fixed income securities switching them back into short dated inflation linked bonds.
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Ashburton Global Sterling Man Inc comment - Sep 05
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Monday, 21 November 2005
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Fund Manager Comment
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Bonds had a relatively lacklustre start to the quarter with most major markets posting slightly negative returns for July. The terrorist attacks in the City of London at the start of July pushed bonds higher as equities sold off. However, the rally was short lived as equities showed resilience and recovered, whilst the bond markets eased and continued to fall lower for the remainder of July. August was dominated by oil, which saw Brent Crude touching USD68 per barrel. As stockmarkets faltered, the spotlight returned to bonds, which after a shaky start, rebounded into the month-end. However, the rally was short-lived and during September sustained a period of consolidation, with the US and Japan both falling around 1.5%. US inflation-linked bonds (TIPS) held up particularly well relative to conventional bonds, as the rampant oil price led to some deterioration in inflationary expectations.
At the start of the quarter, the currency markets were dominated by surprise revaluation of the Chinese yuan which helped many Asian currencies to rally. August saw the US dollar drift lower as investors cut long positions. However, tough talk from the Federal Reserve on inflation and the property market bubble saw the US dollar bounce back towards it highs during September.
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Ashburton Global Sterling Man Inc comment - Aug 05
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Thursday, 15 September 2005
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Fund Manager Comment
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The month of August was dominated by oil, as firm demand and supply concerns combined to push the price of Brent Crude to over $68 per barrel, a new record high. Not surprisingly, this development stopped the summer equity market rally in its tracks, with most markets registering little or no gains on the month. As stockmarkets faltered the spotlight returned to bonds, which after a shaky start, rebounded into the month-end. UK bonds were further boosted of a 0.25% reduction in interest rates. US inflation-linked bonds were also impressive, as the rampant oil price led to some deterioration in inflationary expectations.
In the currency markets, the dollar continued to drift lower as investors cut long positions and started to pare back their expectations for interest rates. The pound was one of main beneficiaries, as speculation of further UK rate cuts faded. Asian currencies lagged a little, as the excitement surrounding the Chinese currency revaluation died down.
There were no major strategy changes during August.
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Ashburton Global Sterling Man Inc comment - Jul 05
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Friday, 26 August 2005
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Fund Manager Comment
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Despite fears of rising inflation and interest rates (particularly in America), bond prices rose at the start of the quarter. The bond rally continued into May and was aided by news that hedge funds may be experiencing liquidity problems and investors sought an alternative route to safety. German government 10 year yields hit a 109 year low, fuelled by a weakening economy and high unemployment (now over 11%). Although profit taking during the middle of June caused a sharp sell-off, this was short-lived and bonds continued to rise thereafter to end the quarter higher. Elsewhere, the currency markets were dominated by the strength of the US dollar, gaining over 5% and 8% versus the pound and the euro respectively. The March US trade deficit figure issued at the beginning of May unexpectedly narrowed to US$55 billion (vs. US$62 billion expected). This initiated the US dollar rally which continued throughout May and June and was helped further by the Federal Reserve raising short-term rates by 25 bps on two occasions during the quarter. There were several strategy changes during the quarter for the Cash & Fixed Income Service. After holding both Swiss francs and Singapore dollars, we took profits early on and switched both positions into the Swedish krona. In addition, we moved half of our Japanese yen exposure into the euro. On the bond front, we took profits on our 7-10 year US bonds, switching into more conservative short-dated and inflation-linked bonds and later increased our TIPS weightings with 8-10 year notes.
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Ashburton Global Sterling Fix Inc comment - Mar 05
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Monday, 6 June 2005
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Fund Manager Comment
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Global bond markets had an uninspiring quarter. After posting steady, if not spectacular gains during January and the first half of February, Greenspan's semi-annual monetary testimony initiated a significant sell-off with most markets breaking through key support levels. While Greenspan suggested that the US economy was on a sound footing, monetary policy was still viewed as too accommodative and the pace of rate tightening was unlikely to slow. This was soon to be implemented after the Fed raised rates by a quarter-point for a seventh consecutive time to 2.75% during March. This provided little support and culminated in bonds finishing the quarter in negative territory.
Elsewhere, in the currency markets the US dollar had a volatile quarter: the Fed's tough talk on interest rates served to bolster the dollar into the first half of the quarter. However, it soon lost ground as investor sentiment turned bearish. A strong rally into the remainder of the quarter for the US dollar was initiated after the Fed raised interest rates and inflationary pressures resumed. During the quarter, we remained relatively defensive on bond strategy. We first took exposure to short-dated US inflation linked notes before switching these into fixed notes with similar duration. Later, we increased our duration by switching our short-dated positions into 10 year fixed notes. We were particularly active on currency strategy throughout the quarter: switching between the pound, dollar, yen, Canadian dollar, Swiss franc and the Swedish krona.
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Ashburton Global Sterling Fix Inc comment - Dec 04
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Wednesday, 23 March 2005
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Fund Manager Comment
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US treasuries had a volatile three months: disappointing new job creation figures in October pushed the 10-year yield lower, whilst a heavy sell-off was initiated in November after Fed Chairman Alan Greenspan warned that dollar-denominated assets would lose appeal to foreign investors over time. However, after becoming particularly oversold, an increase in buying activity was set off at the start of December, which culminated in treasuries finishing relatively unchanged on the quarter. On a currency front, the widening US trade deficit, combined with Greenspan's comments during November, did little to support the dollar which weakened throughout the quarter against most of the major currencies. Elsewhere, the pound was lifted by the Bank of England's hawkish comments inferring that UK rates have not yet peaked, however, it continued to lose ground against the persistently strong euro over the quarter.
Several strategy changes were implemented during the last quarter for the Cash & Fixed Income Service. Initially, we raised our exposure to the pound by selling the Australian dollar. Later, we took profits on all our Canadian bond holdings and a proportion of our New Zealand government bond positions, replacing them with short-dated US bonds in anticipation of a dollar recovery. Most recently, we switched part of our US dollar position and rotated into the Canadian dollar in order to reduce possible short-term losses from the weakening US dollar. Following a recent burst of strength, we decided to switch half of our Canadian dollar position back into US dollars.
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Ashburton Global Sterling Fix Inc comment - Nov 04
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Monday, 3 January 2005
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Fund Manager Comment
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US bonds started the month on a weak note due to the strong new jobs creation figure (337,000 actual new jobs versus 175,000 expected) which sent treasuries tumbling and forced yields up towards the 4.20% level. Furthermore, US stocks were lifted after the Federal Reserve cited an improving economy and labour market when it raised its benchmark lending rate for the fourth time this year (+25bps to 2%), both of which did little to help the US bond market.
After a short period of consolidation, a further sell off was initiated during the middle of the month after Fed Chairman Alan Greenspan warned that dollar-denominated assets will lose appeal to foreign investors over time. Greenspan's comments, not surprisingly, had a negative impact on the dollar itself which weakened considerably for the remainder of November against the majors (sterling, euro and yen) and also pushed the gold price to new highs.
During the month of November, we took profits on all of our Canadian bond holdings and a proportion of our New Zealand government bond positions, replacing them with short-dated US bonds. We believe that the US dollar is approaching a low of some significance and, on recovery, would almost certainly lead to a reversal of recent flows (i.e. back into short-dated US Treasuries out of other bond markets).
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Ashburton Global Sterling Fix Inc comment - Sep 04
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Thursday, 18 November 2004
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Fund Manager Comment
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During the third quarter lower inflation, slower growth, oil price concerns and weak stockmarkets all helped to boost bond prices to their highest level for several months. Although the Federal Reserve raised rates in the US by further 25bp to 1.75%, 10 year yields were particularly resilient and continued to fall and briefly dipped below the 4% level. Despite a significant drop in yield support, the US dollar only experienced mild losses versus the euro and actually strengthened slightly versus the yen and pound. The pound came under pressure during the last quarter and turned out to be one of the weakest major currencies. This was due to the slowing UK property market which tilted the Monetary Policy Committee towards a more dovish stance on future rate policy.
We took a more defensive move for bond strategy switching our US TIPS position into shorter-dated New Zealand bonds (a market that had previously lagged). Only one currency strategy change was implemented during the quarter: we switched out of the Singapore dollar and took exposure to the pound which is now particularly oversold.
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Ashburton Global Sterling Fix Inc comment - Aug 04
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Friday, 17 September 2004
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Fund Manager Comment
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For the past few years, bonds and equities have been virtually the mirror image of each other: equities go up, bonds go down and vice versa. With this in mind, the fact that bonds rallied in the first half of August should come as no surprise. After all, stockmarkets were falling given investors' concerns regarding the high oil price and its negative implications for economic growth. What was surprising was the fact that bonds actually continued to rally even when the oil price corrected and equities rebounded, with many markets reaching levels not seen since April. It seems bond investors are sceptical as to how much the lower oil price can do for the US economy
Currency investors were apparently more convinced, with the dollar rebounding as the oil price topped out, despite the significant reduction in bond yield support. Despite this recovery, the dollar still finished net down against the euro and the yen. It strengthened slightly versus the pound, which was overshadowed by signs that the Monetary Policy Committee's high interest rate policy may finally be bringing the overheated property market to heel.
During the month of August, the Cash & Fixed Income Service raised its exposure to the pound (selling the Singapore dollar) and switched the emphasis of bond strategy away from America to the laggard New Zealand market, adopting a much more defensive stance in the process.
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Ashburton Global Sterling Fix Inc comment - Jun 04
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Wednesday, 1 September 2004
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Fund Manager Comment
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The strong US jobs data announced in early April set the scene for a dreadful quarter for bonds, with the US bond market experiencing one of its biggest ever quarter-on-quarter declines. Accelerating inflation added to the gathering gloom on bonds, with interest rates' expectations deteriorating dramatically during the quarter. Back in March, interest rates were widely expected to remain flat for several months. Now interest rates are expected to rise considerably. Indeed, we have already seen the first step in that direction with the Federal Reserve raising their benchmark interest rate by 0.25% to 1.25% on 30 June. In the currency markets, the dollar initially drew some solace from expectations of higher interest rates but it was not to last. By the end of the quarter, it was already heading lower again as investors' focus returned to the large current account deficit.
During April, the fund manager's increased the funds exposure to bonds, with particular emphasis on the United States. There were several changes to currency strategy: the fund manager's took profits on the Norwegian krona and half the funds yen position (subsequently reinstated at lower levels); in June, the fund manager's switched all of the funds Swedish krona position into pounds and introduced exposure to the Australian and Singapore dollars.
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Ashburton Global Sterling Fix Inc comment - Mar 04
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Wednesday, 19 May 2004
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Fund Manager Comment
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The bond markets remained buoyant from the start of the year - particularly in the US where bond yields continued to fall throughout the quarter. This was due to largely weaker than expected non-farm payroll figures for both January and February and soothing words from the Federal Reserve. Although the FOMC were particularly upbeat about growth in the US, they said that inflation would remain low and that they could therefore be patient about raising interest rates. This consequently caused the US dollar to decline and bond prices to rally. However, the US dollar then recovered strongly towards the end of February and into March, as massive intervention by the Bank of Japan brought about a recovery in the US dollar versus the yen - ultimately forcing the US dollar to strengthen versus the pound and the euro.
We took advantage of the New Year bond rally to significantly reduce our exposure to bonds during the last quarter and on the currency front, our main strategy change was a 20% weighting in yen.
The Fund increased by 0.7% over the quarter.
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Ashburton Global Sterling Fix Inc comment - Dec 03
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Tuesday, 10 February 2004
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Fund Manager Comment
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Bond markets were remarkably stable during the fourth quarter given that all the economic news was generally good and beat expectations. Nowhere was this more apparent than in America, where the economy was announced as having grown at an annualised rate of 8.2% in the third quarter.
Interest rate hikes in both Britain and Australia reminded everyone of the fact that the world is entering the tightening phase of the cycle. Despite this bevy of bad news, bond prices only registered minor losses on the quarter. Their resilience was due partly to the oversold condition developed during the preceding sell-off and partly to the massive purchases of US bonds undertaken by Asian central banks as part of their currency management activities.
Bond weightings were raised to 50% during the quarter in anticipation of a short-term recovery. Profits were taken on some of the fund's European currency positions and US dollar weightings were raised as the year came to a close. The Cash & Fixed Income Funds were mixed on the quarter. The fund decreased by 0.3% over the quarter.
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Ashburton Global Sterling Fix Inc comment - Sep 03
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Friday, 14 November 2003
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Fund Manager Comment
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The position of bond markets at the end of the third quarter is little different to the levels recorded at the half-year stage, however, this seemingly stable picture belies the major volatility bonds experienced over the summer months. Yields continued to rise throughout July and August on growing evidence of a sustainable economic recovery, with US 10-ear yields briefly touching 4.59% in early September. However, the subsequent bond rally was almost as pronounced, as mixed economic data and fears of a jobless recovery in the United States fuelled the reversal.
Another major feature over the period was the changing fortunes of the US dollar. As equity markets and the economy improved, the US dollar rose almost 7% against the euro, before plunging 8% in September, as worries over the ballooning current account deficit and the US Treasury abandonment of its 'strong US dollar policy' took hold. The decline against the yen was more gradual until the G7 meeting in Dubai. Comments concerning central banks taking a more market-driven approach were interpreted as reducing the scope of the bank of Japan to manipulate their exchange rate by selling yen and instigated the US dollar's sharp fall against the Japanese currency.
The Fixed Income Funds all performed strongly over the quarter. This fund rose by 1.5% over the quarter.
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Ashburton Global Sterling Fix Inc comment - Jun 03
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Friday, 15 August 2003
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Fund Manager Comment
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In May, Alan Greenspan's comments that he was concerned about the outlook for the American economy set the bond market alight. Although the word 'deflation' was never mentioned, the market read between the lines and the US long bond surged to levels not seen for fifty years. It had also been in Alan Greenspan's interest to 'talk-up' bonds, allowing US consumers to refinance their mortgages at record low levels, increasing their disposable income and shoring up the economy. As a result, the US bond market was driven to artificially high levels.
Towards the end of the quarter we saw some of this hear coming out of the market, with yields in all major markets rising sharply. This rise has coincided with a recovery in the US dollar, which at one stage dropped to 1.19 against the euro. It is perhaps too early to say that the massive monetary and fiscal stimulus has worked. It does however appear that the low in long bond yields of 4.17% in mid June may mark a major turning point.
All of the Fixed Income Funds generated a positive return over the quarter. The fund increased by 1.6% over the month.
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Ashburton Global Sterling Fix Inc comment - Mar 03
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Wednesday, 28 May 2003
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Fund Manager Comment
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Government bonds showed positive returns during the quarter as they were seen as a natural safe haven for investors who were in no mood to dabble in equities whilst America was on a war footing with Iraq. As international tensions grew in the weeks prior to the start of the war US 10-year benchmark yields briefly dipped through their October lows before giving back much of this performance as the conflict began.
The US dollar continued to suffer, declining 3.8% against the euro over the period. This was partly due to war concerns but the ballooning US budget and trade deficits were also a contributing factor. The UK Monetary Policy Committee took the market completely by surprise in reducing the base rate to 3.75%. The European Central Bank cut its equivalent rate to 2.5% but given the painfully slow rate of growth with the Eurozone, especially Germany, further cuts or a reduction in the value tot he euro seem necessary.
Positive returns were generated by all the fixed income services over the first quarter. The fund increased by 2.3% over the month.
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Ashburton Global Sterling Fix Inc comment - Jan 03
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Tuesday, 25 February 2003
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Fund Manager Comment
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Many of the themes that dominated fixed interest markets during the second half of 2002 continued into January. Sharp declines in global equity markets, the US dollar in secular decline, weak economic data and the constant fears over war with Iraq. This fear seems more prescient than ever following president Bush's 'State of the Union' speech to Congress, which provided the clearest sign yet that the Administration's patience with Saddam Hussein has just about run out.
Despite the fact that war looks now to be more likely than ever before, US government bonds have actually fallen over the month. International investors seem nervous of the US dollar, given its continued decline against the euro, and as a result have ensured that European government bonds have outpaced their US counterparts.
The Fixed Income funds were able to secure a profit on their 10% weighting in the Australian dollar, which was introduced last summer. This exposure has been switched into US dollars for Ashburton's sterling based clients, as the dollar remains over-sold in the short-term.
The fund remained the same over the month.
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Ashburton Global Sterling Fix Inc comment - Dec 02
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Friday, 14 February 2003
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Fund Manager Comment
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The economic picture didn't become any clearer in the 4th quarter, as some good corporate earnings figures had to be judged next to poor retail sales and consumer confidence numbers. The action of both the Federal Reserve and the ECB in cutting interest rates by 50 basis points is evidence of the continued slowdown. However, the Bank of England failed to join the party, citing the stellar rise in house prices and an uptick in inflation for keeping rates on hold for the 14th consecutive month. The US economy's lack of progress also led to the resignations of Treasury Secretary O'Neil and key economic advisor Lindsay.
The drop in the value of the US dollar and the continued rise in US government bonds have mirrored America's woes. The US dollar lost 6.3% against the euro over the quarter, as the ballooning trade deficit and the imminent war in Iraq continued to hit investor sentiment. US bonds have also outpaced their European and Japanese equivalents, ensuring that 2002 was the best performing year for US government debt since 1995.
All of the fixed interest funds registered a positive return over the quarter. The fund rose by 0.5%.
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Ashburton Global Sterling Fix Inc comment - Oct 02
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Monday, 18 November 2002
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Fund Manager Comment
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Bonds have been inversely correlated with equities for most of this year, so with equities finally rallying, It was wholly predictable that bonds would give up some of their gains of the past few months. The general feeling was that bonds had become over-bought and a shift back into equities has been made by a number of fund managers.
However, the economic picture remains mixed, with good corporate earning figures being balanced by poor retail sales and consumer confidence numbers. All eyes will now be focused on the Federal Reserve's Interest rate decision in November, with a 25 basis point reduction already factored into the markets.
Bond weightings were raised following the mid-month sell-off. A 30% weighting in inflation-linked bonds was introduced (20% Europe and 10% USA), which was partly funded through the sale of Swedish inflation-linked bonds. At the month-end, the European fixed income weighting was halved to 10%.
Despite the sharp fall in bond markets, all the fixed interest funds registered gains in October, with the fund up 0.4% on the month.
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Ashburton Global Sterling Fix Inc comment - Sep 02
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Tuesday, 12 November 2002
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Fund Manager Comment
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The ongoing threat of war with Iraq, weak economic data and failing equity markets continued to drive bond prices higher in the third quarter. The US 10-year yield dipped to 3.57%, its lowest level since the late 50's. The Japanese 10-year yield briefly touched a new 3-year low; European bond yields fell just short of doing the same.
European bonds failed to keep pace with US bonds, clear winners of the quarter, despite a disastrous showing by the region's equity markets, Japanese bonds lagged badly, due largely to a sharp sell-off in the second half of September. This correction was triggered by the Bank of Japan's decision to purchase equities directly from the banks, which gave rise to concerns that they would reduce their purchases of government bonds.
A degree of calm descended on the currency markets, following the significant losses registered by the dollar in the second quarter. The pound was the strongest major currency of choice, with Investors drawn by the solid fundamentals and relative stability of the UK economy.
The fund rose marginally on the quarter - up 1.4%.
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Ashburton Global Strlng F Income Management May 02
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Wednesday, 26 June 2002
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Fund Manager Comment
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Government bond markets were mixed in May, with the US and Japan marginally higher and a modest decline in European markets. At times of economic turmoil, government bonds are seen as a safe-haven. However, a record $27 billion Treasury auction of two year notes in the US, and the spectre of inflation, has led investors to funnel monies into commodities, with gold prices reaching levels not seen since October Ę99.
For the second consecutive month, the dollar weakened across a broad range of currencies, as continued worries about the validity of corporate earnings continues to spook a market already nervous in light of terrorist threats and international conflicts. In the medium term, an increased US government funding requirement is likely to push yields higher, however, it seems likely that bonds will remain range-bound until we see a decisive move in equity markets.
A number of strategy changes have been made during the past month. The two-year Canadian bonds which were purchased in April, have been sold, locking in a profit. Further profits were crystallised by the reduction of our exposure to the euro and the removal of the krona exposure. Renewed opportunities to take currency exposure will be actively monitored.
During the month, Replica Sterling Cash & Fixed Income was up 1.26%, Replica Dollar Cash and Fixed Income also posted a rise of 1.44%. Global Sterling and Dollar Fixed Income were up 1.30% and 1.41% respectively.
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