European economic data was disappointing in September, with the French and German stock markets closing the month down by over 10% in local currency terms. The EU cut back its economic growth forecast for 2008, with recession forecast for Germany.Global markets all declined sharply as the financial crisis continued, first with the US government stepping in to rescue Fannie Mae and Freddie Mac and then followed by the bankruptcy of Lehman Brothers, the sale of Merrill Lynch, the US government takeover of insurer AIG and the rescue of Wachovia. The heavy impact of these events on some European banks showed that the credit crisis which began in the US is now spilling over into Euroland.It was a difficult month for the fund which underperformed its benchmark index and the peer group, with both stock and sector selection negative. At a factor level, management hubris (the tendency of highly acquisitive companies to underperform over the longer term) was strong but valuation (the extent to which current share prices reflect future earnings expectations) struggled in the volatile markets.The large overweight position in the healthcare sector yielded strong returns, with French pharmaceutical company Sanofi-aventis leading the way. Changes in sector positions included a reduction in the large underweight in financials, funded by a reduction in the overweight of industrials. The weightings in other sectors remained unchanged.
310.72p
