Fund Objective

To achieve a high rate of interest.

View on Past Performance

The Fund saw gains of 1.0% over the third quarter of 2008, outperforming its benchmark and sector average. The period saw a gradual decline in money market rates up until mid-September, at which point Lehman's bankruptcy resulted in a sharp increase. Earlier, money market rates had fallen in response to continued deterioration in the UK economy and housing market.In addition, inflation remained well above target, further complicating the task of the Bank of England (BoE)'s Monetary Policy Committee (MPC). The MPC held rates at 5.0%, with August's minutes revealing a 7-1-1 split, as one member voted for a hike, and another for a cut. Markets were encouraged by the BoE's Inflation Report, which forecast the target of 2.0% would be hit in two years, increasing hopes for a rate cut.In September rates initially continued to ease, but volatility returned with a vengeance mid-month following the shock of the Lehman's bankruptcy. Global money market rates jumped sharply, as banks hoarded cash amid a flight to quality. The credit crisis intensified as concerns grew as to the fate of the US insurer AIG, although the US Federal Reserve allayed concerns somewhat with an US$85bn bridge loan.However, towards month-end there was a further jump in money market rates due to concerns over Bradford & Bingley, Washington Mutual and Fortis. Although Bradford & Bingley was nationalised, part of Washington Mutual was bought by JPMorgan, and Fortis received a bail-out from various European governments, tensions remained high.Over the quarter, three-month sterling libor initially fell from 5.95% to 5.70% (mid-September), but then jumped sharply to 6.30%, as the credit crisis worsened and a global shortage of liquidity saw banks very reluctant to lend to each other. The Fund maintained a conservative stance, retaining a focus on high credit quality names and shortening maturities. The Fund held no exposure to Lehmans, Bradford & Bingley, or Washington Mutual.

Future Expectations

Credit conditions are likely to stay volatile hence we will continue to concentrate in the more Øsystemic' financial names, which we believe to be fundamental to the soundness of the financial system. Likewise, as a high level of uncertainty remains, we will adopt a defensive stance on the WAM and keep maturities short with a higher than normal level of liquidity.

Fund Details