July was a difficult month for the US markets with renewed concerns over the subprime market triggered by news of huge declines in two of Bears Sterns' flagship hedge funds. Volatility picked up markedly as risk aversion increased.There was also a significant decline in leveraged buyouts and other debtrelated financing activity that had been a support to global markets in the recent past. The US dollar was aggressively sold as the US inflation outlook moderated, suggesting increasing expectations of interest rate cuts to deal with the sluggish housing market.July proved to be a difficult month for the fund, during which it has marginally underperformed the index, although it is still ahead year to date. The factor-forecasting model was negative, with negative returns to both valuation and management hubris, which more than offset positive returns from stock and sector momentum.Stock selection was negative, with a number of consumer discretionary and financial stocks falling sharply, among them DR Horton Allstate and General Motors. Overall, sector selection was neutral, although the underweight position in the staples sector and the overweight position in materials detracted from returns.The fund's turnover in July was average and the majority of sector views remained in place, with the main overweight position in consumer discretionary and the main underweight in both consumer staples and information technology.
61.41p
