The market gyrations continued in November as investors experienced multi-percentage point moves on a daily basis. This has now become the norm whereby a 1% move is seen as below average. One of the largest ever weekly up-moves in the last week in November rescued what looked like a repetition of October’s declines.
While equity investors’ view on future equity market volatility has moved down, primarily due to the late November rally, the same cannot be said in the credit market, where volatility remains persistently high. For there to be a return to more normalised markets and for investors’ risk appetite to return (even to a small degree), there has to be a sustained reduction in volatility in both. The recent government programs, despite specifically targeting a reduction in credit risk and improving liquidity appear to be missing the mark, at least in the short term. Investor confidence in these policies must be regained for the credit markets to turn around.
Funds in general and investment trusts in particular again suffered in November with discounts on certain asset classes widening even further. With market makers unwilling to commit capital and a reluctance for investors to buy, even small supplies of stock, forced down prices sharply and widened spreads and discounts. We have selectively been taking advantage of anomalous price movements to add to positions at attractive entry points.
The Fund’s portfolio is structured into six broad themes. Specialist investments include those exposed to specific industries or areas such as Eastern Europe or emerging markets. Property exposure is concentrated in emerging Europe and the less mature areas of developed Europe. Hedge funds represent exposure less dependent on stockmarket direction. Funds with investments in resources cover a broad range of commodities both in exploration and production. Private equity exposure is targeted towards those funds in the realisation phase of the private equity cycle.