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Meeting Tue October 27th 2009

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Meeting Tue October 27th 2009 Powered By Docstoc
					                           FUND MANAGEMENT DIARY
                                Meeting held on 27 October 2009

Further thoughts on LIBOR

This time last year, the sterling London Inter-bank Offer Rate was in excess of 6%, at
a time when the Bank of England was hastily cutting base rates with spreads on fixed
interest instruments at all time highs. Inter-banks operations had all but seized up
and Armageddon was apparently staring us all in the face. At that time, our diary
was very much making the comment that the key to the future of the market was
watch the spreads on LIBOR and as indications that the position was starting to close
occurred, this would be the catalyst to reinvest into stock markets.

We are now at the opposite end of the spectrum, with sterling LIBOR now at around
0.5%, close to the bank rate and the markets are awash with money, although
surprisingly, the retail banks are not keen to lend except to absolute blue chip
customers. The position can be considered to be somewhat incestuous, as with
quantitative easing, in which the Bank of England has utilised over £170bn,
effectively printing new money to purchase bonds, primarily at the long end. This has
thereby forced interest rates into the present near-zero to 0.5% conundrum, which
has resulted in the retail banks being forced to purchase bonds and gilts and as this
gives them a near 3% turn, it is not surprising that banks are doing extremely well
with the bonus season looking good!

Evidently, while retail banks’ balance sheets have been repaired, the printing of
money by the central bank to boost M4 money supply and then allow them to make
easy profits, cannot be sustainable and markets must re-adjust in the near future to a
proper commercial basis if the economy is to resume a sound footing. The main
damage has been done to savers, together with firms relying on credit. The former
now receive little or no return for their thrift and are being forced to look to more risky
assets to try and obtain a measure of return, while the latter continue to have their
businesses being threatened.

In this cycle, the ghost at the party is the necessity for government to be able to
reduce national debt following the stimulus actions they have taken, but this will
require that they are able to issue treasury bonds to mop up the excess liquidity.
This will inevitably require the cost of money to increase, with increases in interest
rates, particularly at the longer end and the restoration of credit to the private sector.
At the same time, they must reverse the quantitative easing position and with total
debt now estimated in the UK to be in excess of 100% of GDP, this is going to be a
tall order, especially as credit conditions will tighten, thereby not helping soundly
based organisations, which need to maintain their cashflow.



    The enclosed are comments and opinion only of the Margetts Fund Management Team intended for use by
          professional Financial Advisers. They do not constitute advice or verified factual information.
The markets are indicating that the principal fear is that inflationary pressures are set
to increase as governments are undoubtedly fully committed to avoiding a fall-back
into recession and indeed there are signs of rising demand in the so-called ‘out of the
money’ options on interest rate swaps, with prices now at 200 basis point premiums
above the ‘at the money’ strike level. Also, while inflation will be helpful to some
companies, it also can be extremely difficult for others and these factors need to be
borne in mind.

Features such as the above have also been reflected in many other instruments,
such as currency dealing, with the weak dollar and pound, together with
strengthening commodity prices spread across the spectrum, especially food prices
through to energy and metals.

Capital is being re-priced and it is more than evident that this is ending up by
benefiting those nations with cheap labour, an abundance of raw materials and a
sound overall economic system, while the old economies are having to struggle to re-
balance their books. Perhaps adding insult to injury is that many of the emerging
economies are now introducing capital controls in which they are imposing a
purchase tax on the acquisition of their domestic assets by overseas investors and
are also considering restricting activity by foreign banks within their foreign
exchanges.

Strategy

Our strategy remains broadly unchanged in that we wish to buy assets which will
benefit within the scenarios we are setting out in our themes and maintaining the
primary objective of looking to earnings growth being the overall key to success.




    The enclosed are comments and opinion only of the Margetts Fund Management Team intended for use by
          professional Financial Advisers. They do not constitute advice or verified factual information.
Providence

The M&G Corporate Bond fund has been a little disappointing in recent weeks,
although this has been due to the manager shortening duration, which is in line with
our current themes. Nevertheless, we will investigate the situation. We are
considering small top-ups from cash into our equity positions on weaker days in the
near future.
                             Asset Allocation
                          USA        Asia Pacific
                          6%             8%



  UK Equity                                            Bonds and
   Income                                             Fixed Interest
     31%                                                  26%




               UK
               5%
                                         Cash/Money
                    Europe                 Markets
                     7%                     17%


Select

The fund is well balanced in line with our current themes. We expect to make some
top-ups to equity holdings from cash in poor market days. The Artemis UK Special
Situations fund has underperformed somewhat over the last six months and the
reasons for this are being investigated.

                                Asset Allocation

              UK Equity      USA
                                                Asia Pacific
               Income        8%
                                                   15%
                 5%

                                                           Bonds and
                                                          Fixed Interest
                                                              12%


               UK                                          Cash/Money
              34%                                            Markets
                                                               9%
                                                     Emerging
                                      Europe          Markets
                                       12%             5%




    The enclosed are comments and opinion only of the Margetts Fund Management Team intended for use by
          professional Financial Advisers. They do not constitute advice or verified factual information.
International

The Japanese holdings have held back performance in recent weeks, but are
providing a benefit from diversification as this market has a low level of correlation
with other international markets, which have become more closely correlated in
recent times. Top-ups from cash will be effected with regard to market timing.

                            Asset Allocation

                                         Asia Pacific
                                            16%
            USA
            28%                                    Cash/Money
                                                     Markets
                                                       8%

                                                   Emerging
                                                    Markets
                                                     9%
             UK
            13%                           Europe
                         Japan             17%
                          9%



Venture

The Venture fund is best placed to take advantage of our current themes, which is
illustrated by remaining a leader in the active managed sector. We are looking to
replace the underweight Japanese holding and boosting our overall Far Eastern
weightings.

                            Asset Allocation

                          USA
                  UK      8%
   Specialist     6%
                                                Asia Pacific
     5%                                            31%
    Japan
     3%

    Europe
     9%

                                                Cash/Money
                                                  Markets
                                                    7%
                       Emerging
                        Markets
                         31%




     The enclosed are comments and opinion only of the Margetts Fund Management Team intended for use by
           professional Financial Advisers. They do not constitute advice or verified factual information.

				
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