The Global Fund (USD) gained 0.% in November bringing the YTD return to 12.67% and the rolling annual return to 13.82%.
Of the nine themes in the portfolio in November, three contributed positively to returns, three lost money and three had no significant impact.
Credit Spreads in Transition was profitable; all managers generated positive returns including the newly added Asia specialist. The Dubai news jolted credit markets and contributed to a net widening of High Yield spreads over the month, the first such move since early in the year. Our managers are ready for a market in which weak balance sheets and refinancing risks outweigh beta moves.
Asian Consumer Power was a positive performer. We have added a talented fourth manager.
Financial Sector Dislocation made a small profit, taking advantage of the two way pull currently present in the sector. Policymakers have designed things so that Banks can earn fat spreads and rebuild their capital with those profits at no further taxpayer cost. But the population of stressed borrowers is growing, and while some Banks will earn enough to accumulate new capital faster than additional bad loans are written off, others will fail, or at least fail to emerge from public sector domination as quickly as markets expect them to.
At 23%, Relative Sovereign Opportunities is the largest allocation in the portfolio. Its November performance was neutral. The news that Greek sovereign debt faces a ratings downgrade emerged during the month and despite the potential significance of this for Greek Banks which might find themselves unable to use their own Government bonds as collateral for the ECB borrowings on which they rely, other European Government Bond markets hesitated only briefly. Nine months ago, this would have engendered a systemic scare. Now, local fundamentals matter most, and, as the fundamentals assert themselves, opportunities multiply.
In Japan Corporate Event Opportunities all managers lost money. This disappointing outcome reflects a difficult month in which stock indices fell over 6% in the face of truly remarkable yen strength. We had already taken action to completely revise the construction of this theme, reducing exposure in absolute and market risk terms, but this transition was still in process.
In the last monthly report of 2009, the pattern of returns for 2009 so far is as follows. The largest percentage return and the greatest portfolio contribution has come from the average 9% allocation to the credit theme. Inflation/Deflation Uncertainty has a similar weighting and has generated a solid contribution, as has Relative Sovereign Opportunities with an average 21% weighting. The Energy theme was introduced in April and has generated a double digit percentage return on its 8% allocation, producing a contribution to portfolio returns of just less that 1%. Japan has been a drag on performance with a negative 0.7% overall contribution. The remaining five themes in the portfolio today, together with two themes terminated in Q1 have not had a material impact on the year’s results so far. In terms of its net market exposure, the positioning of the fund has been cautious throughout the year and is still only modestly positive.