September was a particularly difficult month for financial markets. The FTSE All-Share Total Return Index fell 13.2%#, its worst monthly performance since October 1987. In the US, Lehman Brothers, the investment bank, fell into insolvency, the two state-sponsored mortgage underwriters, Fannie Mae and Freddie Mac were effectively nationalised, while the insurer AIG was part-nationalised and given an $85 billion state loan.In the UK, Bradford & Bingley, the troubled buy-to-let mortgage lender, was nationalised and Lloyds TSB announced an agreed all-paper takeover of HBOS. The global economic and financial crisis gained momentum, with money markets stalling as the banks' nervousness reached extreme levels. Defensive sectors outperformed over the month including food retailers, tobacco and utilities as investors sought areas of the market that offered protection in these uncertain times.Global growth sectors underperformed, with mining and industrial engineering being two of the worst performers. The fund benefited from its large equity positions in utility and tobacco stocks. Transactions included the addition of HMV, Catlin and Reed Elsevier. At the same time, the equity holdings in Vodafone, Scottish & Southern Energy and Tullett Prebon were reduced.The direct exposure of the fund's bond portfolio to defaults has been limited. Bank debt, including more senior bonds, fell significantly last month, however, dragging down the prices of other fixed interest assets. In addition, the interbank lending market deteriorated further. This had negative short-term funding implications for banks and increasingly affected other companies.
50.45p
