September was a tumultuous time for the global financial system and markets. The credit crisis returned to centre stage amid the shock over the collapse of Lehman Brothers and the subsequent government bail-out of insurance giant AIG. In this very volatile environment, risk aversion rose sharply.Sector allocation made up most of the fund's outperformance in September. Specifically, our continued focus on defensive issues and avoidance of more cyclically oriented areas were the main factors benefiting the portfolio. Among the overweight positions, our holding in telecoms was the biggest contributor to the fund's performance. The fund's underweight in banking issues was also beneficial.Amid the current volatility we have sought to keep a steady hand. We prefer defensive sectors over cyclicals. We also prefer the senior part of the capital structure (including FRNs) and better quality issuers, while remaining underweight CCCs, which are more vulnerable to defaults.Given the cheaper valuations resulting from the market turbulence, we are examining opportunities to invest selectively in some out-of-favour names, as well as continuing our watching brief on our underweight in cyclicals.
1.85
