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Old Mutual Elite Sterling Defensive Fund - News
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Old Mutual Elite Sterling Defensive Fund
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Fund
News
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OM Elite Sterling Defensive comment - Dec 03
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Wednesday, 28 January 2004
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Fund Manager Comment
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| The UK bond market had a positive month during December but was down over the quarter and this performance was mirrored by the GBP Defensive portfolio. Elite GBP Defensive gained 0.26% over December but fell slightly over the quarter. Analysts are expecting another UK interest rate rise in the early part of 2004, having already seen an increase of 0.25% during Q4 2003. Policymakers will be mindful not to raise rates too far too fast, bearing in mind figures released in Q4 showed a lower than expected level of inflation.
Inflation will in all probability be a theme that dominates central bankers' agendas over the coming months, focusing in particular how long monetary stimulus can remains at current levels before signs of inflation begin to appear. US policymakers anticipate that it will be some time before we begin to see meaningful inflation, as the excess capacity that still exists in many areas should absorb the trend towards strong growth that we have seen in recent months.
In currency markets the dollar continues to depreciate against most major currencies, and the administration does not appear to be in any hurry to call a halt to the trend. Much of this is caused by the high and increasing borrowing requirements of central government in the US. If government borrowing continues to increase at the present rate, the Federal Reserve may be forced to raise interest rates, which may cause yields to rise sooner than the market currently expects.
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OM Elite Sterling Defensive comment - Oct 03
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Wednesday, 26 November 2003
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Fund Manager Comment
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| Bond and currency markets became increasingly volatile over the course of October, with a particularly difficult time experienced in UK and European markets. There were strong indications that central banks are about to embark on a new cycle of interest-rate rises, with the Bank of England being the first to actually raise rates by a quarter point to 3.75% during the month.
US economic data is now indicating an economic recovery, probably stronger than initially thought. Some doubts still exist about its sustainability given the precarious labour market conditions. The US dollar appreciated slightly against an overbought euro. It depreciated strongly against the dollar block (commodity currencies seen as beneficiaries of economic recovery), Sterling and against the yen, on belief that the Japanese authorities have changed their currency policy and are now willing to accept a stronger currency.
The lack of inflation and the low interest rate environment should cap any significant rises in bond yields going forward, although there may be a mild up-trend that could lead to a rally next year.
European interest rates have been on hold since June. European bond markets had a bad month in October, losing more than 1.5%. Their move has been mainly affected by developments in US Treasuries so they outperformed in domestic terms. There have been some indications of improvement in the economic outlook and data on the recent past indicates that most of the European economies may be coming out of near recessionary conditions.
October was a poor month for the UK gilt market, registering a loss of 2.75% in local currency terms. Yields moved up across the curve, although the rise was less prominent towards the longer end of the curve, illustrating that the market is not becoming unduly worried about the outlook for inflation at present.
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OM Elite Sterling Defensive comment - Sep 03
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Thursday, 13 November 2003
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Fund Manager Comment
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| Global bonds lost ground over July and August, correcting from previous overbought levels. The Sterling Defensive portfolio suffered from the relative strength of sterling against the dollar over the period and showed some underperformance of the benchmark. The portfolio gained 0.34% over the quarter, compared with a benchmark performance of 1.20% over the same period.
Given the challenging times faced in Treasury markets in the early part of the quarter, one of the themes among underlying managers was a shift from government securities to corporate bonds. Funds that benefited from stronger performance in corporates were Allianz Dresdner High Income and Old Mutual Corporate Bond Fund.
As we move into the fourth quarter, some current reflationary trends are likely to present challenging times for bond markets in the coming months, though policymakers will be mindful not to let yields rise too far and risk choking off the burgeoning economic recovery.
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OM Elite Sterling Defensive comment - Aug 03
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Thursday, 18 September 2003
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Fund Manager Comment
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| Global Bonds lost a little more ground in August, after losing considerably more in July. The Sterling Defensive portfolio managed to outperform its sector, mainly through its 10% exposure to equities which pushed the portfolio into positive territory for the month.
With stronger economic data coming through the US dollar has performed strongly relative to both the euro and sterling gaining over 2% on the euro and over 1% against sterling. With the short end of the curve still discounting an increase in interest rates in the US, managers who were short duration and overweight the Euro (as most of the Elite managers are) suffered relative to the benchmark. Unfortunately this shortfall could not be made up with the allocation to asset backed and non-government securities.
In the global sector, the Old Mutual and Mellon funds suffered with their longer than benchmark euro exposure under performing by over 2% against the benchmark in US dollar terms.
Elite's specialist European bond funds such as Morgan Stanley and Schroder outperformed its benchmark as stronger data from the Eurozone reduced the likelihood of further interest rate cuts by the ECB in the near term and thus, corporates and agencies (where both funds are overweight) performed strongly.
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OM Elite Sterling Defensive comment - Jul 03
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Tuesday, 26 August 2003
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Fund Manager Comment
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| Global Bonds suffered heavy falls during July with the 10 year Treasury note having one of its worst months since 1984. Despite poor bond performance, the 10% equity exposure managed to push the Sterling Defensive portfolio into positive territory for the month.
As the dollar gained some ground against the euro and sterling it was the dollar hedged version of the JP Morgan Global bond which performed best of all the global funds. The Invesco fund held up reasonably well, thanks in the main to the weighting in investment grade corporate bonds.
In the US portion it was the Investec fund which performed well, more than offsetting the marginal underperformance from the Schroder Dollar Bond fund. The Investec fund has moved from its long duration position to a much shorter stance which benefited the fund in July.
Within the European portion of the portfolio, both Morgan Stanley and Schroders marginally underperformed their benchmarks through July.
Last month's move away from the UK gilt market in favour of corporates proved to be a good call as both Old Mutual Corporate Bond and Allianz Dresdner High Income outperformed their benchmarks.
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OM Elite Sterling Defensive comment - Jun 03
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Tuesday, 12 August 2003
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Fund Manager Comment
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| Changes have been made to the portfolio over the quarter in the UK and European portions of the portfolio. The Invesco GT Gilt fund was sold and proceeds have been redistributed to the Old Mutual Corporate Bond fund and the Dresdner High Income Bond. This takes exposure away from the gilt market in favour of corporate bonds.
The Lombard Odier EU Convergence Bond fund was removed as capital returns tailed off. The fund subsequently declined more than 3%, therefore this was a timely move by the manager.
Corporate bonds outperformed government bonds over the latter part of the quarter, as yields on governments issues increased.
The dollar gained against the euro in June, a reversal in trend of the previous few months, and this hurt many of the global managers who were predicting a further rise in the euro against the dollar. The global bond funds struggled against their benchmarks while in the US, the Schroder Dollar bond was the star performer in June.
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OM Elite Sterling Defensive comment - May 03
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Thursday, 19 June 2003
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Fund Manager Comment
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| Global bonds, despite the rise in global equities, also managed to rise in May. The 10% equity exposure acted as a boost to performance over the month and this left the Sterling Defensive portfolio up by 2.38%.
The global bond funds all performed well over May. The euro hedged funds saw performance enhanced through a strengthening euro, whilst the weaker dollar slightly hampered the performance of the dollar based funds.
The UK bond holdings performed significantly better. The Old Mutual Corporate Bond fund performed strongly, returning over 3% in Sterling terms, as did the Invesco GT Gilt fund.
A new fund, Allianz Dresdner High Income Bond was added this month and performance from this was good too. This move increases the credit exposure of the portfolio while the position in Old Mutual Corporate Bond was slightly reduced therefore locking in some gains.
Regionally, the US performed relatively poorly, marginally underperforming the JP Morgan Global Traded Index. The Investec fund has remained invested in treasuries at a time when corporates have been performing better, and this dragged slightly on overall performance of the Dollar Defensive portfolio.
The best performer in the European exposure was Schroder, which outperformed its benchmark by over 0.2%.
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OM Elite Sterling Defensive comment - Apr 03
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Thursday, 12 June 2003
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Fund Manager Comment
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| Global bonds, despite the rise in global equities, also managed to rise in April. The 10% equity exposure acted as a boost to performance over the month and this left the Dollar Defensive portfolio up by 2.4%.
The global bond funds held all performed better than the JP Morgan Global Traded Index. Mellon and JP Morgan were the star performers as these were the funds with the most euro exposure. The euro gained against both sterling and the dollar once again during April, and these bond managers made additional ground on the back of these currency gains.
In the UK portion of the portfolio, the best performer was the Old Mutual Corporate Bond fund, beating its benchmark by over 1%.
In the US, Investec had a poor month as it remained invested at the longer end of the yield curve. This fund, which does not invest in corporate debt, performed very well throughout last year capturing strong upside through the good bond run during 2002. Schroders compensated for Investecs poor month by being invested in a mixture of corporate debt of varying degrees of credit.
In Europe both the Schroder and Morgan Stanley funds were in line with their benchmarks, while value was added through the Lombard Odier European Convergence fund.
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OM Elite Sterling Defensive comment - Mar 03
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Friday, 23 May 2003
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Fund Manager Comment
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| As equities have continued to suffer from investor uncertainty, bonds have again performed well. Over the quarter the Sterling Defensive portfolio has returned 2.69%, comfortably ahead of the sector.
Due largely to the current war situation in Iraq, economic fundamentals are being broadly ignored and investors are trading predominantly on sentiment. This means that as equities retreat, bonds, although many analysts believe them to already be overvalued, tend to rally.
Within the portfolio, the manager increased the weighting to global bonds from 30 to 33% as global managers are making more aggressive calls relative to some of the regional managers. This benefited the portfolio early on in Q1.
In the UK element of the portfolio, the Barclays BGI Gilt fund was sold during Q1 to make way for the Old Mutual Corporate Bond fund. This fund looks to invest in good quality company debt which is likely to add value to the portfolio.
In the European portion during Q1, the manager sold out of the Investec fund and replaced it with the Morgan Stanley fund which has more of a Euro focus. Also within Europe, the manager switched out of the Schroder short-term bond and moved into a very similar fund run by Schroders, which focuses on longer-term duration.
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OM Elite Sterling Defensive comment - Feb 03
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Friday, 28 March 2003
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Fund Manager Comment
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| As investors continue to shun equity markets, bonds appear to be the choice of investors. The Sterling Defensive portfolio posted a positive return of 3.96% over February, helped by a fall in the value of Sterling against the US dollar of almost 4.5% during the month.
Different asset classes have responded in different ways to the crisis in Iraq. Corporate bond spreads have not widened as expected and volatility indicators have not increased. At the same time, oil has some safety premium as do sovereign bonds.
In the global bond portion, the JP Morgan Euro Global Bond performed well as the euro continued to strengthen against the dollar.
The Old Mutual Corporate Bond fund was marginally behind its benchmark, whilst the Invesco GT Gilt fund also fell behind its benchmark, making the UK one of the poorer performing elements of the portfolio over February.
European bonds also performed strongly as President of the European Central Bank, Wim Duisenberg, made comments over the deteriorating economic outlook, helping short dated European bonds perform well.
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OM Elite Sterling Defensive comment - Jan 03
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Wednesday, 26 March 2003
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Fund Manager Comment
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| As talk of war continues to dominate equity markets, bond portfolios continue to benefit. The sterling Defensive portfolio outperformed its benchmark over January although slipped into negative territory over the month due in part to the unprecedented falls seen in the FTSE 100 mid-month.
European and Japanese bonds outperformed US bonds while corporate bonds managed to resist the declines seen in equity markets, although geopolitical events did raise fears of short-term volatility.
UK interest rates were held in January (although they have since been lowered in early February) as industrial production data proved disappointing.
Within the portfolio, the manager has increased the weighting to global bonds from 30 to 33% as global managers are making more aggressive calls relative to some of the regional managers. This has benefited the portfolio over January.
The Barclays BGI Gilt fund has been sold during January to make way for the Old Mutual Corporate Bond fund. This fund looks to invest in good quality company debt which is likely to add value to the portfolio.
In the European portion, the manager has sold out of the Investec fund and replaced it with the Morgan Stanley fund. This has more of a euro focus and this is also key as the dollar seems set to weaken further against the dollar. Also within Europe, the manager switched out of the Schroder short-term bond and moved into a very similar fund run by Schroders, which focuses on longer-term duration.
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OM Elite Sterling Defensive comment - Dec 02
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Thursday, 13 February 2003
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Fund Manager Comment
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| The Sterling Defensive portfolio performed very well over December, posting positive returns whilst the sector was negative. The portfolio is also ahead of the sector over all time periods.
In the UK interest rates have remained unchanged over the quarter again. UK Gilts have provided solid gains in December with the Invesco GT Gilt fund being the best performer of the UK holdings. The BGI Gilt and Fixed Interest holding, which is predominantly a corporate bond fund, performed in line with the benchmark over the month.
US bonds had a good December and this was reflected in excellent performance from the US portion of the portfolio. Gains were seen as equity markets fell with Treasuries generally outperforming corporate bonds. The better US holding was the Investec Dollar fund due to its focus on Treasuries.
Economic news remains mixed in the US which prompted the Federal Reserve to cut interest rates by 50 basis points in November, the intention being to provide further stimulus to the economy.
Global bond funds showed positive returns over the month as did European and Japanese holdings. The best performing holding in Europe was the Investec European Bond fund. Elsewhere in Europe, the European Central Bank reduced interest rates by 50 basis points as the eurozone, similar to the US, seeks stimulus.
The global equity funds reflected market movements, rising in October and November and falling back in December, to post positive Q4 figures.
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OM Elite Sterling Defensive comment - Nov 02
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Thursday, 19 December 2002
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Fund Manager Comment
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| Global bonds nudged higher (up 0.03%) as equities rallied whilst the UK Traded Bond index fell 0.7%. The relative strength in portfolio performance came from the equity portion of the portfolio.
UK Chancellor Gordon Brown gave his pre-Budget report this month, causing controversy by announcing almost doubled levels of government borrowing for 2003 (up to GBP20bn from the previous level of GBP11bn). This announcement came with a downward revision to GDP estimates to 1.6% from a previous figure of 2-2.5%.
Some positive news came in final reports on third quarter corporate earnings in the US. Companies in the S&P 500 reported an average rise in earnings of 6.9% on the last quarter, and many commentators' expectations are that profits will average an increase of 14.9% in Q4 2002. However, the Federal Reserve did cut interest rates by 50 basis points in November, indicating the economy could use further stimulus and is therefore not in as good a shape as originally thought.
Corporate bonds have provided good value and the outlook is promising as corporate fortunes look set to improve, a year on from the Enron fiasco first surfacing. The main UK holdings are the Barclays BGI and the Invesco GT Gilt fund.
The best performer this month was the Lombard Odier EU Convergence fund which was helped by the rise of the Euro against the Dollar.
All the global equity funds performed well, adding good value to the portfolios over November.
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OM Elite Sterling Defensive comment - Oct 02
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Monday, 18 November 2002
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Fund Manager Comment
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| Global bonds fell in October as equities rallied. The Global Traded Index was down 0.42% while the UK Traded Index was down 0.88%. The Defensive portfolio managed to post positive returns amid these conditions which justifies the 10% equity exposure which has weighed on performance during the equity bear market.
The global economic picture continues to produce conflicting pieces of data. US GDP growth was 3.1% - a significant improvement on the second quarter, but disappointing compared to projections of between 3.5% and 4%.
The UK saw rather better news this month, as manufacturing achieved positive output growth for a third consecutive month.
Corporate bonds have provided good value and the outlook is promising as corporate fortunes look set to improve. The main US holding is the Schroder US Dollar Bond which has adopted a more cautious approach recently in the aftermath of Enron and WorldCom. This has helped performance and protected against much of corporate bond volatility.
All the global equity funds performed well adding good value to the portfolios over October.
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OM Elite Sterling Defensive comment - Sep 02
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Friday, 8 November 2002
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Fund Manager Comment
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| The bond market continues to prosper as equities suffer. Despite many seeing bonds as fairly expensive, the flight to quality argument still seems to be capturing investors. The JP Morgan Global Bond index rose 1.18% in September and 4.17% over Q3 and the UK Traded index rose 1.88% (September) and .82% (Q3). Performance of the Sterling Defensive portfolio was held back by the portfolio's 10% exposure to equities.
Economic data emerging from economies world-wide appears conflicting. Fears of a 'double-dip' recession have been subsiding of late, however, falling consumer confidence and manufacturing figures tell a different story. The prospect of a US rate cut is now more of a possibility than earlier in the year when many forecasters were of the opinion that the bottom of the rate cutting cycle had been reached. Data in the UK is more optimistic, especially compared to the eurozone where unemployment remains a prominent problem. UK interest are not widely expected to fall further, in part due to the continued rises seen in UK residential property prices. Interest rates have remained on hold throughout the quarter in the US (1.75%), the UK (4%) and the eurozone (3.25%).
The change which has been made is that part of the underweight to Japan has been addressed. The manager has increased this Japanese weighting by adding a Japanese yen cash fund. This boosts the exposure to Japan and will benefit the portfolio as the yen is seen to strengthen relative to the US dollar.
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OM Elite Sterling Defensive comment - Aug 02
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Tuesday, 17 September 2002
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Fund Manager Comment
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| Global bonds have been benefiting from the recent sell-off in equities as the flight to quality again took hold of traders. The JP Morgan UK Traded Bond Index rose by 2.38% in August. The portfolio's small exposure to equities had a negative impact on performance but the portfolio still managed to post positive absolute returns in August, up 2.36%.
The manager's decision to increase the weighting in Japan by adding a Japanese yen cash fund has proved beneficial to the portfolio as the Yen continued to strengthen relative to the US dollar in August. However, the portfolio is now marginally underweight on expectations that the dollar will be making a comeback.
Mixed economic signals have been coming from the world economies of late, which adds to the uncertainty felt across markets at the moment. US consumer confidence steadied in August, indicating that consumer spending probably will support the economy's recovery. Interest rates have remained unchanged in the US, UK and Europe again in August with a growing possibility that interest rates may remain flat for the rest of the year or indeed fall even further. This is contrary to the belief, shared by many in the early part of the year, that we had seen interest rates bottom out.
Elite is continuing to look towards the corporate bond managers to add value to the portfolio. The US corporate exposure is held via the Schroders and Investec USD Bond funds and in the UK via the Barclays Gilt & Fixed Income fund and the Invesco GT Gilt fund. All of these managers hold bonds in quality companies so the risk of default is minimal.
UK interest rates are not as likely to be cut due to the fact that the UK property market continues to rise at an astounding pace - the fastest annual pace since 1989. The consumer is maintaining strong spending in the high street however manufacturing is struggling and this combination implies interest rates may stay on hold for some time to come.
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OM Elite Sterling Defensive comment - Jul 02
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Thursday, 29 August 2002
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Fund Manager Comment
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| Global bonds have been benefiting from the recent sell-off in equities as the flight to quality again took hold of traders. The JP Morgan UK Traded Bond index rose by 1.46% in July. The portfolio's small exposure to equities had a negative impact on performance and dragged the portfolio into negative territory for the month, but still ahead of the benchmark.
A change was made in July to the portfolio in order to bring it closer to a benchmark neutral position. The change, which has been made, is to address the underweight position to Japan. The manager has increased this Japanese weighting by adding a Japanese yen cash fund. This boosts the exposure to Japan and will benefit the portfolio as the yen is seen to strengthen relative to the US dollar.
Mixed economic signals have been coming from the world economies of late, which adds to the uncertainty felt across markets at the moment. Consumer sentiment fell in the US early in July and then later on in the month Alan Greenspan said in his speech to the US Senate Banking Committee "The US economy is gaining momentum and can weather a loss of faith in corporate honesty". Interest rates have remained unchanged in the US, UK and Europe again in July with a growing possibility that interest rates may remain flat for the rest of the year or indeed fall even further. This is contrary to the belief, shared by many in the early part of the year, that we had seen interest rates bottom out.
UK interest rates are not as likely to be cut due to the fact that the UK property market continues to rise at an astounding pace - the fastest annual pace since 1989. The consumer is maintaining strong spending in the high street however manufacturing is struggling and this combination implies interest rates may stay on hold for some time to come.
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OM Elite Sterling Defensive comment - Jun 02
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Friday, 26 July 2002
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Fund Manager Comment
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| The JP Morgan UK Traded Bond index rose over the quarter and this was reflected in the Defensive portfolio. The equity element did weigh on performance, but not sufficiently to reverse a positive Q2.
The manager began reducing exposure to the global bond component of the portfolio this quarter, instead placing more emphasis on regional managers. From the previous weighting of 40%, the weighting is now closer to 30%.
Early on in the quarter, the manager decided to switch the JP Morgan Global Fixed Interest fund for the JP Morgan Global fund ex UK. This fund utilises the same expertise that was the rationale for choosing the JP Morgan fund in the first instance but the new fund hedges back to sterling rather than dollars. Holding the dollar fund has been beneficial for the portfolio while the US dollar has gained strength. As the dollar has now fallen this has been a good move by the manager.
The manager, having reduced the global exposure, has taken the opportunity of adding to the European weighting. A new fund, Lombard Odier European Convergence Bond Fund, has been added as a satellite holding. The fund gives exposure to higher yielding debt in Europe without exposure to the struggling telecom based corporate bond sector. It offers the potential to benefit from convergence to EMU bonds as happened with Italy and Spain when they joined the EU. This fund addition takes on more of a political/geographical risk as opposed to the traditional funds which look to take on corporate/government risk. Throughout June, the best performing region for bonds was Europe, bringing justification for the Elite manager's conviction.
Elite is continuing to look towards the corporate bond managers to add value to the portfolio. The US corporate exposure is held via the Schroders USD Bond and in the UK via the Barclays Gilt & Fixed Income fund. Both of these managers hold bonds in quality companies so the risk of default is minimal.
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OM Elite Sterling Defensive comment - May 02
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Friday, 26 July 2002
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Fund Manager Comment
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| Global Bonds enjoyed a second successive good month at the expense of equities. The JP Morgan Global Bond index rose 2.31% in sterling terms, adding to the 1.19% posted during April. The portfolio enjoyed another positive month on the back of the good returns from bonds.
The manager has begun to reduce exposure to the global bonds component of the portfolio, instead placing more emphasis on regional managers. The previous weighting of 40% is now c.34% and may be reduced a little further towards 30% in coming months. The Old Mutual Worldwide Bond and the Mellon Newton Global Bond have both been strong performers year to date, adding value to the portfolio. These funds have both moved down the credit curve, but holdings are top quality corporate bonds. The Worldwide bond fund has seen positive attribution as an overweight position in the eurobloc has led todollar gains.
The manager, having reduced the global exposure, has taken the opportunity of adding to the European weighting. A new fund, Lombard Odier European Convergence Bond Fund, has been added as a satellite holding. The fund gives exposure to higher yielding debt in Europe without being dragged along by the telecom based corporate bond sector. It offers the potential to benefit from convergence to EMU bonds as happened with Italy and Spain when they joined the EU. This fund addition takes on more of a political/geographical risk as opposed to the traditional funds, which look to take on corporate/government risk.
Elite is continuing to look towards the corporate bond managers to add value to the portfolio. The US corporate exposure is held via the Schroders USD Bond and in the UK via the Barclays Gilt & Fixed Income fund. Both of these managers hold bonds in quality companies so the risk of default is minimal.
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OM Elite Sterling Defensive comment - April 02
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Monday, 24 June 2002
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Fund Manager Comment
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| Bonds, as in most cases when equities slide, were the favoured asset this month. Global bonds, as represented by the JP Morgan Global Index rose 2.83%. Overall attribution was strong although the largest holding in the fund - the JP Morgan Fixed Interest fund - held back performance as the benchmark rose propelled by the Dollars' depreciation. The fund remains ahead of its benchmark year to date and over the longer term.
The manager decided to switch the JP Morgan Global Fixed Interest fund this month for the JP Morgan Global fund ex UK. This fund utilises the same expertise that was the rationale for choosing the JP Morgan fund in the first instance but the new fund hedges back to Sterling rather than Dollars. Holding the Dollar fund has been beneficial for the portfolio while the US Dollar has gained strength. The US Dollar is expected to depreciate as the mainstay of its strength is weakening. Therefore the new funds mean we lock-in profits the Dollars ascent to strength has given, and hedge the risk that the Dollar may weaken.
In Europe, the bond market appears to have reached a stage where the likelihood of further interest rate cuts is now negligible. Therefore, the manager is looking to take money away from the Schroders short dated fund, although this fund could gain if investors begin to speculate on Euro strength and put cash into short-dated bonds leading to increased demand and short-dated bond prices rise.
Also in Europe, the Investec fund recently broadened its mandate to be able to hold up to 25% in investment grade corporate bonds. This change of mandate suits the Elite manager as he believes that the corporate bond market is small in Europe and as such does not warrant an individual fund holding in Elite. Furthermore, the European corporate bond market is dominated by TMT debt, which has seen marked downgrades over the past year. So the widening of the Investec mandate fits with the Elite managers views.
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OM Elite Sterling Defensive comment - March 02
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Thursday, 16 May 2002
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Fund Manager Comment
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| A poor quarter for bonds was rounded off by further falls in March 2002, with the JP Morgan Global Bond index down just over 1% in March 2002 (in Sterling terms) and a near 2% fall in the JP Morgan UK Traded Bond index. The Sterling Defensive portfolio fell, caused mainly by the fall in global bonds, and exacerbated by Sterlings rise against the Dollar, however the portfolio is ahead of its benchmark over longer time periods.
Bonds were driven downwards as a result of uncertainty over the pace and scale of impending interest rate increases. Alan Greenspan, from the Federal Reserve, has indicated that he is prepared to wait until the recovery is firmly in place before looking to increase rates so as not to jeopardise the recovery in its early days.
In the global bond component, the manager has marginally reduced the JP Morgan Global Bond in favour of the Invesco GT Bond. Being an unhedged product there is more scope for currency gains against the US Dollar and also the amount of credit products held, eg, agency debt, in the fund is higher than JP Morgan. The portfolio now has 30% in each of the funds (of the global weight) and the manager believes that an active strategy to currency and credit will help relative performance against the benchmark.
In both the US and the European parts of the portfolio the manager has been increasing the holding of the Investec funds.
Being underweight Japan hurt relative performance in March. The JPM Global Traded was down 0.44% but the Japanese index was up 2.2% (in Sterling terms). Over the last six months however, the strategy has proved correct with Japan underperforming by 5.1% (in Sterling terms), which contributed to relative outperformance over a six month period.
In the UK bond portion, Barclays performed well as UK corporate bonds outperformed gilts. The overall attribution for the quarter was positive although UK bonds did fall in March. The Invesco fund, with its government bond exposure outperformed the UK Traded index over the first quarter of 2002.
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