While July and August were marked by significant sector rotation, including a premature rally in financials stocks and an aggressive energy/commodity sell-off, the quarter was dominated by the tumultuous events of the final month. The Fund (down 13.5%) fell by more than its benchmark (down 5.4%), although it should be noted that Fund performance was negatively impacted by the timing differential between the Fund's valuation point and that of the index.Fears regarding slowing global growth led to weakness in the energy and some commodities sectors, illustrated by falls in thermal coal exporter Bumi, Subsea7 and Cairn Energy. Reflecting the crisis in global financial markets, the biggest detractor from performance was the financials sector, including Morgan Stanley - one of our largest financials holdings.Elsewhere, the deteriorating economic environment hit our industrials holdings, particularly General Cable Corp, while falling oil prices also impacted wind turbine manufacturer Vestas Wind Systems, with cheaper oil lowering investor interest in alternative energy. On a positive note, IT was more resilient, with good results from Hewlett-Packard and Cisco Systems. In activity, the Fund underwent a major repositioning in September, in order to make it considerably more defensive.A decrease in materials reduced cyclical exposure, particularly as the sector has been suffering from falling earnings momentum. Within financials, our prior bias away from the US was also reduced. We sold UK-listed Man Group and increased exposure to large-cap US names, such as Bank of America, JP Morgan and Wells Fargo, which we view as well-capitalised. We are avoiding smaller-cap names with weak balance sheets. The economic outlook has deteriorated and we now face global recession.Global earnings are likely to fall sharply, while de-leveraging should be an ongoing feature of markets. The outlook depends critically on governments' policy responses. With risk premia now at extreme levels and inflation peaking, the re-emergence of recession worries has brought interest rate cuts back on to the agenda across all major economies. While equity valuations appear attractive, we are conscious that bottom-up earnings estimates are still too high, given the environment.
264.82p
