The effects of the Credit Crunch, with the shortage of liquidity, particularly in the bank sector, has resulted in a more significant economic downturn than would normally occur when Central Banks tighten credit to reduce inflationary pressures. Effectively, the interbank lending rates are around 75 basis points above base rates, which has made it far more difficult for monetary policy to be applied.In addition, commodity prices had moved to all time highs, which increased the inflationary effect, predominantly, in the Western economies. The double whammy has led to uncertainty, together with volatility in the major world stock markets, and despite earnings returns, yields, together with cash to book values now being at historically undervalued positions, especially when compared to bonds, it is likely that the down trend will continue as recessionary fears dominate sentiment.The fund manager increased the cash and low duration elements of the portfolio, particularly index linked bonds, while adjusting equity holdings towards earnings and dividend growth, and in addition have taken advantage of the opportunities arising from market volatility by making selective top-ups.
442.19p
