October was another poor month for equities with volatility (as measured by the VIX) climbing to record levels and indices reaching new multi-year lunches. Indeed, at one stage equities had produced their second worst annual performance ever (only 1931 was worse), before staging a slight rally into the month end. Unsurprisingly, in this environment small and mid cap stocks significantly underperformed large caps.In response to the deepening economic slowdown and ongoing financial sector crisis, governments and central banks around the world intervened with the largest ever bank bailout package.This was followed by coordinated rate cuts by the Fed, ECB, BoE, Riksbank and SNB.Yet again, with macro concerns continuing to dominate, sector moves were the main drivers of performance with large cap defensive sectors continuing to outperform.Deleveraging continued apace as hedge funds and other market participants sought to reduce their exposure. It is exceptionally difficult to determine when this process will end but we remain convinced that this will throw up a number ofinteresting opportunities over the forthcoming months. The Fund used the extreme volatility to initiate new positions in a number of holdings including Balfour Beatty, Scottish & Southern, Babcock Plc, International Power, IMI, and AstraZeneca.
679.80p
