January opened strongly, but from there shares steadily lost ground, reflecting concerns about resources and the financial sector. Monetary tightening in China hit metals prices. Banks have to contend with a tougher political and regulatory environment, and increasing indications of credit problems in the Eurozone. As a result, the FTSE All-Share Index fell 3.6% over the month (total return) and the Fund was down 4.5% (NAV, total return). During the month, the Fund repositioned more defensively.
There were favourable contributions in January from Spirent, Afren, Paragon and ARM. The hedging (short) position in broker dealer, ICAP, also helped. The main negatives were in resources; Royal Dutch Shell, Tullow Oil and Anglo American. Tullow’s fall reflected a stock placing and concern about gaining political approval for its plans in Uganda. Resource sector exposure was reduced within the Fund, with profitable sales of Kazakhmys and Antofagasta. New investments were made in Experian, International Power and Shire Pharmaceuticals. New hedging positions were added in financials, significantly reducing exposure to the sector. We expect that Spain and some other European nations will provide increasing concern to credit markets.
The Fund has a relatively defensive stance currently, with very low exposure to financials, but positive on industrials, utilities and technology. Resource exposure emphasises oil companies with strong drilling programmes.
Source: Lipper hindsight to 31.01.10.
Pharmaceuticals
Pharmaceutical companies’ steady revenues and cash generation provide a defensive option for investors. The ability to reduce the cost-base by cutting bloated sales teams and improving operational efficiency will help increase industry profitability. The sector currently trades on low valuations and has supportive dividend yields.