European markets rose in May in euro terms, led by the oil & gas and materials sectors. The fund's biggest strategic positions are the overweight in oil & gas and the underweight in industrials. The fund's defensive positioning worked reasonably well, particularly the overweighting in oil & gas. However, the underweighting in industrials proved unhelpful. The fund is also underweight in financials (particularly banks) and retailers, and both positions added value.Overall, the fund retains a defensive stance with high weightings in commodity-oriented sectors and low weightings in industrial and consumer sectors. At the stock level, the lack of exposure to UBS was the biggest positive contributor. The holdings in Norsk Hydro and Novozymes proved beneficial, as both are beneficiaries of rising commodity prices. The largest detractor was Euler Hermes, the French credit insurer, which published poor results and announced that the difficult economic outlookwould affect the company's prospects, particularly to the detriment of its claims experience. The stock has now been sold. Royal Dutch was purchased as a play on the oil price. Additionally, the fund bought the oil services company Fugro, and Carlsberg, which has better growth prospects than its peers. Elsewhere, BBVA and Inditex were sold in light of the poorer prospects for the Spanish economy, particularly with the ECB now unlikely to announce any interest rate cuts before 2009.
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