The Fund returned a net cumulative performance of -10.16% in September, underperforming the benchmark which returned -4.58%. Uncertainty prevailed as the credit crunch worsened, prompting the collapse of US investment bank, Lehman Brothers and large retail bank, Washington Mutual. The Federal Reserve was forced to step in to save mortgage providers Freddie Mac and Fannie Mae, as well as insurer, AIG from similar fates.Meanwhile, Merrill Lynch and Wachovia were sold at knock-down prices to similarly avoid insolvency. The US government announced a $700bn rescue fund to help support the market. The UK credit market performed poorly in the third quarter, influenced by US market events. In particular, HBOS suffered from extreme selling pressure. Such was the extent of its share price collapse that it was forced into a government-brokered rescue-sale to Lloyds TSB.Elsewhere, Bradford & Bingley as nationalised to prevent its bankruptcy, the government taking control of its £50bn in mortgages and loans. The underperformance of the Fund compared to the benchmark was predominantly explained by the exposure to US financial names and in particular the exposure to AIG, Washington Mutual, Lehman Brothers and GE. It was also explained by the weakness in the UK financial sector and the exposure to Barclays and Cattles.In terms of macro position, the Fund benefited from the interest rate curve steepening strategy implemented late August. The Fund has been trying to reduce its exposure to financials since the middle of August, but it has been virtually impossible to sell in this illiquid environment. The new manager has been actively seeking to reduce the risks posed by the financial sector, and has managed to make some disposals despite the poor conditions.The intention is to re-structure the Fund as soon as possible with the aim of providing it with greater capital protection, lower volatility and a more broadly diversified base of corporate assets.
135.10p
