Having described September as a "shocking " month for markets, October looked like being even worse. Only a last minute rally resulted in the total return of -11.9% being slightly less poor than the previous month. The Fund return of -3.8% was partly attributable to the defensive characteristics of the portfolio going into the downturn and also due to raising equity exposure when buying opportunities became particularly abundant.As a result the Fund's equity exposure began the month at 83% and finished at 90%, the highest it has been since launch. This was achieved predominantly by adding to existing holdings such as AstraZeneca, BP, Severn Trent, Vodafone and Cadbury. Two significant new holdings were purchased, BG Group and a 3I Group convertible yielding 18% to redemption in 2011.
Recent market volatility will continue to throw up anomalies such as this which we will continue to seek out. Purchases of equities were funded by cash and the sale of short-dated gilts. With cash returns dwindling as base rates fall, sustainable equity yields will look increasingly attractive to investors seeking real income growth.