September was an exceptionally difficult month for the New Star UK Alpha Fund, which fell 20.4%* while the FTSE All-Share Total Return Index lost 13.2%*.The portfolio suffered badly from the shocks caused by the failures of Freddie Mac, Fannie Mae, Lehman Brothers, AIG and Merrill Lynch in the US and Congress's delay in approving the White House's "troubled asset relief programme". In the UK, the fund had to deal with issues resulting from the Financial Services Authority's decision to ban the shorting of financial stocks as well as problems with UK banks generally.Deleveraging by hedge funds caused particular problems. As a result of deleveraging, popular hedge fund long positions - mainly global growth companies - fell while popular short stocks rose as a result of short covering. The fund focuses on global growth companies while avoiding UK consumer-related stocks.This approach caused losses in September but has worked well in the past and should deliver good relative returns in the future. In particular, with credit availability at risk, the fund aims to avoid companies that rely on consumer spending and those with high borrowings.Last month's underperforming stocks included Weir Group, Charter, Laird and Game Group, which were weak despite positive news. Weir Group issued an upbeat trading statement, Charter performed well in emerging energy markets, Laird benefitted from exposure to growing emerging markets, while Game Group increased guidance and announced record interim results. In response to these exceptionally difficult markets, the fund increased its cash holdings during September from 6% to 9%.
95.51p
