Although November was another negative month for equities, the rate of decline was markedly slower than September and October. Encouragingly, stocks rallied sharply from their intra-month low to finish the month only slightly down. Volatility, however, continued at elevated levels with large daily price swings the norm. Large cap stocks again outperformed small and mid-caps.
During the month economic data continued to play catch-up with equity markets as lead indicators deteriorated across the board. Many companies are now reporting that business has declined sharply over the last few weeks. Since companies are increasingly responsive to change and quicker to react to downturns, we expect continued negative news flow over the short-term. Such steps, however, should place them in a stronger position for the longer term. The key to a sustained upturn will be a freeing up of credit markets, as essentially the current situation is akin to capitalism without capital. Despite this difficult backdrop, the ongoing dislocation continues to offer opportunities to investors. The Fund used recent weakness to add to a number of existing positions and initiate new holdings in DS Smith and Lonza.
Strong performers during the month included International Power, Babcock Plc and Novae. The funds holdings in DNB Nor and Lonmin were weak.
Travel and Leisure
As the cost of fuel remains high and consumers continue to reign in spending, demand for cheaper modes of transport is rising. We expect bus and rail operators to benefit most in this environment as rising fuel costs can be absorbed by an increasing volume of passengers.