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Nedgroup Investments Global Equity Fund Nedgroup Investments (IOM) Limited Nedgroup Investments Global Equity Fund News Nedgroup Inv Global Equity comment - Mar 14 Thursday, 5 June 2014 Fund Manager Comment Key drivers to investment results for the Global Equity Fund: Q1 2014 Over the first quarter of 2014, the portfolio returned 4.5% and the MSCI 1.3%1 (with 1 year numbers to 31 March at 21.3% and 19.1% respectively). Health Care, Consumer Discretionary, IT and Industrials were notable contributors to absolute returns. On a regional basis the United States added to returns. The portfolio has had a relatively good 12-month period, which is satisfying given that markets have been so strong and that we typically tend to do better on a relative basis when markets are weak. Top absolute contributor: SES The company delivered a solid set of FY13 results, emphasising strong underlying rates of growth in sales and EBITDA. The dividend was again increased 10% as the anticipated improvement in cash flow came to fruition. With Astra 5B now safely in orbit, Astra 2G scheduled for launch late in Q2 and the next cluster of O3b satellites due to be launched later this year, barring unforeseen anomalies, the business is well placed for another strong operational year. With leverage ratios declining, the Board and new CEO have the healthy predicament of deciding how best to utilise the incremental debt capacity at their disposal; even after investment in new growth satellites and some M&A, we would still anticipate scope for further incremental returns to shareholders. Top absolute detractor: BG Group During Q1, BG Group revised down production guidance for 2014 and 2015, primarily due to the political situation in Egypt and a reduction in its North American rig count. The group also raised its expectation for operating expenses in 2014. However, key growth projects in Australia and Brazil remain on track, providing BG Group with one of the most attractive production and FCF growth profiles in the peer group. 1A-class portfolio results: total return USD, net of fees. Benchmark is the MSCI World Index with net dividends reinvested.   Nedgroup Inv Global Equity comment - Sep 12 Thursday, 15 November 2012 Fund Manager Comment The global economy remains weak. The build-up of debt over a multi decade period culminated in the global financial crisis of 2008 and since that time the recovery has been lacklustre. This should have been expected as the aftermath of credit bubbles has been studied and well documented. This time is no different: debt levels need to be reduced and in so doing economic growth will suffer. Government spending can alleviate the pain on households or businesses by effecting a transfer of debt to the Government's balance sheet but as we are seeing in much of Europe this solution is no panacea. The best that can be hoped for in this environment is that policy makers get the right balance of debt reduction (and transfer), austerity and debt monetization to minimize the pain. The constraints of Euroland make it the most prone to a painful deleveraging while the flexibility of the US makes it the most likely to suffer the least pain. However, this is not written in stone and policy actions from this point remain important (and far from easy). While in 2012 attention has been focused on the policy missteps of Euroland, 2013 has the potential to shape up as the year that US policy comes to the fore. With political partisanship running at extreme levels such that few policies get through both Congress and the White House monetary policy has been the only game in town. This may be exacerbated next year (depending on the outcome of the US election) as the US "fiscal cliff" approaches reality. Estimates for the size of the cliff vary between 4% and 5% of GDP. It is likely that some of this will be mitigated through extending some of the current tax reliefs (which will of course add to the US deficit) but some level of fiscal drag remains likely. With this backdrop, the Federal Reserve have certainly not disappointed in the verve with which they have tackled the issue with both zero interest rates as far as the eye can see and money printing in vast quantities. The latest intervention by the Fed was the widely anticipated QE under which the Fed will print up to $40bn per month to buy Mortgage Backed Securities and will continue this until the labour market improves substantially. Indeed if the labour market does not improve substantially over the coming months the Fed has committed itself to undertake more QE. It is clear the Fed has absolute confidence that QE works and it is simply a question of quantity: there is simply no doubt in the Chairman's mind even though we are now well into experimental territory. The theory is simple; QE should lower interest rates which will increase asset prices, which will increase consumption, which will increase employment. However, while QE has undoubtedly had an effect on asset prices the theoretical impact thereafter has been lacking. As Yogi Berra once said "In theory there is no difference between theory and practice. In practice there is." Perhaps QE will prove more efficacious now that it is unlimited. While this could be the case in the short term, such monetary experiments in the past have often proved disastrous. We at Veritas are not macro economists and do not aim to predict the macro-economic environment in 5 years' time, however we should invest bearing in mind that a) equity markets have become an explicit instrument of policy b) The Fed are determined to prove that QE "works" and c) nobody knows today what the aftermath of so much money printing will be in the future. These factors need to be taken into account in any sensible investment strategy. Despite all the alarming headlines about the Euroland crisis, slowing growth and huge deficits, equity markets have performed well so far this year, largely driven by cheap money and quantitative easing by policy makers. The broad MSCI World index is up 13.01% in the first 9 months in USD terms. With a concentrated, benchmark agnostic fund it should come as no surprise that the fund performance does not mirror the performance of a broad global index over a short time horizon. This is particularly the case during a period of money printing when it is usual for higher risk stocks to be the best performing. We continue to focus on the long run and remain acutely aware of the importance of capital preservation especially at times of heightened risks.   Nedgroup Inv Global Equity comment - Jun 12 Tuesday, 28 August 2012 Fund Manager Comment The first six months of 2012 have seen volatile markets with substantial rises and falls in countries, sectors and individual companies. However, the end result has been a modest rise in the global equity market (MSCI World) over the period despite substantial differences within that result. For example the US S&P500 is up 9.5% over the six months whereas the MSCI Europe (ex UK) was broadly flat for the period, gaining just 1.9% in US Dollar terms. Over a longer term perspective, global equity markets seem to be trading what perhaps can best be described as volatile, but sideways market with a total return since 1 January 2010 of 11.8%. Given the context of fair valuations, weak economic growth and policy intervention, this is perhaps not surprising. With a concentrated fund (34 positions at 30 June 2012) the performance of the strategy is unlikely to mirror an index performance. The economic data emanating from all regions is weak. This is not surprising as we are still in the midst of a deleveraging cycle following the biggest credit boom of all time. This needs time to work itself through the system and during that (multi- year) period, high and sustainable economic growth will not be possible. If policy makers do circumvent this deleveraging through zero interest rates and other measures it will simply be sowing the seeds of the next (even larger) credit bubble and bust. It seems clear to most (outside central bankers) that a credit bubble cannot be solved by encouraging more borrowing and spending. In the meantime, equity markets are somewhat of a lottery – fundamentally they do not appear particularly attractive with values at around fair levels, economic growth on the wane, earnings growth likely to be lacklustre (at best) and asymmetric risks on the horizon (in particular the possible collapse of the Euro). However, in the short-term policy makers’ actions will dictate the direction of markets. Forecasting the actions of policy makers is nigh on impossible and certainly impossible with any degree of consistency. At Veritas we do not aim to make such forecasts but instead take a longer term view using valuation as our guide as to when to invest in and when to sell individual high quality companies. We do understand that we do not invest in a vacuum and consequently we assess the environment in which we are investing, often describing our views in themes that help us in navigating the market context. In this regard, we are currently working on a new contextual theme of "2020 Rising Tide Industry Winners." With the current flip flopping nature of markets between risk on and risk off, this theme forces our focus away from the near term volatility of markets and out to 2020. Using the theme we are identifying specific industry, sector or sub-sector characteristics that will become increasingly important over the next eight years (the rising tide). We are then using this work to identify for further research and analysis those companies that have the requisite characteristics.   Nedgroup Inv Global Equity comment - Mar 12 Wednesday, 16 May 2012 Fund Manager Comment Global equity markets enjoyed a strong first quarter in 2012. In fact, many individual markets posted their best first quarter in a decade or more. Evidencing the breadth of this strong performance, a broad global equity index such as the MSCI World returned 11.5% in the quarter. The difference from December could not be more marked. Investors are back in risk taking mood and this has been nowhere more evident than in the returns generated in equity markets. What has led to such a volte face in sentiment by investors between December and March? There would seem to be two major causes: 1. The actions of the ECB through its Long-Term Refinancing Operation (LTRO) in which the ECB offered unlimited quantities of cheap money for three years to Euro area banks (with the requisite collateral. This amounted to over €1,000,000,000,000 (1 trillion) in two tranches. 2. The modest improvement in economic data emanating from the US. The LTRO has certainly had a beneficial impact by ensuring euro area banks had plentiful access to liquidity (thereby pushing any liquidity issues into the future), which consequently had an extremely positive impact on investor sentiment. However, given the subsequent rise in risk assets (especially equities) a note of caution is now warranted. While not taking the same form as the Quantitative Easing (QE) undertaken by the Federal Reserve in 2008/9 and 2010, the impact of such large scale money printing by the ECB has been in many ways akin to QE. While it is difficult to assess what direct impact money printing in the form of either QE or the LTRO has on an underlying economy, the graph above exhibits what effect it has had on risk markets. This is not to dismiss money printing’s usefulness - in late December there were rumours that European banks could not fund themselves and some of the peripheral European countries were unable to economically fund themselves. The LTRO has certainly helped both of these issues (at least temporarily). However, staving off the bankruptcy of some European banks and sovereign nations is not the same as creating solutions to the underlying problems that still persist. The understandable sigh of relief in equity markets has morphed into a misplaced optimism that the underlying problems facing a number of European countries and their respective banks have been solved. This is not the case as the patient still suffers from the disease despite the alleviation of the symptoms. Our view is that the global economy is not out of the woods yet. Debt levels remain abnormally high and can only persist with equally abnormally low interest rates. In the event of sustained inflation, central banks would be faced with a difficult choice: Raise rates and create a recession or let inflation take hold. Furthermore, euro-land is facing dire problems, constrained by a monetary union that does not suit all its participants equally. This situation too is unsustainable. The US is in better shape, but is still in the emergency room with zero interest rates and fiscal deficits as far as the eye can see supporting the modest growth that is being generated. At the same time, the world’s growth engine, China, is slowing down. Whether this slow down can be crafted into a soft landing remains to be seen. Turning to the markets, based on the valuations of the companies that we analyse, equity markets seem modestly overvalued at 31 March. Even allowing for a more positive outturn than our conservative figures suggest, equity markets do not appear cheap. However, with the uncertainties that exist today (many of which have binary outcomes) perhaps equity markets should be demonstrably cheap to compensate?   Nedgroup Inv Global Equity comment - Dec 11 Friday, 9 March 2012 Fund Manager Comment Investment results After the volatility over the first three quarters of 2011, the fourth quarter also displayed considerable volatility in equity markets and currencies. Overall, the tone was positive and markets delivered strong positive Q4 returns. The Nedgroup Investments Global Equity Fund outpaced the market, building on our performance over the previous three quarters, to deliver a return of 1.1% for the full year. This can be compared positively with the MSCI World return for the year of -5.5% (USD, total return), but less favourably against G7 inflation at 2.8%. Quarterly attribution The portfolio marginally underperformed the MSCI World Index in the last quarter, returning 6.5% versus 7.6%. Sectorially, stock selection in financials added to relative results. Stock selection in IT, consumer staples, telecoms and utilities was also positive. On a regional basis, the portfolio's underweight position to Japan and stock selection in North America benefitted the portfolio. The key point to remember is that the relative sector and geographical performance is driven by the 36 stocks currently held. The largest relative contributor to results was Varian Medical Systems. Varian Medical Systems had been unfairly punished by the market in Q3 as a result of slightly slower order growth. Consequently as orders were reported above expectation in Q4 the shares recovered their lost ground and performed well. The largest detractor to results on a relative basis over the quarter was Capita. Continued concerns over the impact of austerity measures by the UK Government and the impact of these on Capita continued to weigh on the shares. Despite positive contract announcements, which bode well for 2012 growth, guidance for Q4 2011 growth was a little below market expectations. Implications for the portfolio While the current economic malaise affecting developed economies has been beneficial for our dependable compounders, it is becoming increasingly difficult to find such companies at attractive valuations. The past two years uncertainty has led many investors to want the dependability offered by these companies and consequently valuations now reflect that. While we still own a number of these dependable compounders that we believe will deliver attractive returns over our investment horizon, there are few we would buy more of today. In fact, in the three months to the end of 2011, we sold our sizeable position in US pharmaceutical company Merck on valuation grounds following strong share price performance. As a consequence, we are now working to identify and analyse more economically sensitive companies that we consider to be industry leaders in their respective areas. As other investors have sought "defensive" companies over the past year (benefiting many of our holdings), some of the more cyclical areas have been ignored leading to some "quality" cyclicals now appearing to offer the prospect of attractive returns over our investment horizon. We are currently in the process of analysing these in more detail, but believe that holding some more economically sensitive positions would help hedge the portfolio in the event of a reflationary cycle taking hold. Given the possibility of this outcome, combined with the dangers of being too concentrated on "one side of the boat" we believe a more balanced portfolio at this juncture is appropriate and are working to this aim.   Nedgroup Inv Global Equity comment - Sep 11 Thursday, 22 December 2011 Fund Manager Comment Markets have continued to remain volatile and "flip flop" between optimism and pessimism. The third quarter experienced a fairly large dose of pessimism which had the effect of taking the return from global equities from being moderately positive at the half year stage (MSCI World up 5.3% at 30 June) to being quite markedly negative at 30 September with the MSCI World down 16.5% in the quarter taking the index down 11.8% for the year-to-date. For the quarter, the portfolio declined 10.9%, which was more than 5% better than the overall market. For the year to 30 September, the portfolio declined 5.1% versus -11.8% for the MSCI. The extreme levels of volatility combined with another quarter of strong inflows, allowed us to allocate new money to ideas, which offered the best price to value relationship at the time. Largest additions were to take positions in MTN, Petrochina, CIA Saneamento of Brazil, SES, Google and Microsoft. We did not exit any positions over the quarter. The portfolio currently has 6.5% in cash, down from 12% at the beginning of the quarter. This is due to the fact that the current (lower priced) market is offering more opportunities to meet our 15% return hurdle. The largest relative contributor to results was Roche. Positive results from seven Phase III registration studies so far in 2011 have reassured investors that the Group can innovate and have led to upgrades to pipeline forecasts. The successful launch of new skin cancer medication Zelboraf, which has been developed rapidly with a companion diagnostic to assure efficacy, raises hopes that Roche's personalised healthcare strategy will benefit patients and reduce development costs. An analyst event highlighting the strength and growth prospects of the diagnostic division was also supportive. The largest detractor to results on a relative basis over the quarter was UBS. UBS has been very weak, not helped by its Q2 results that were worse than expected in its investment bank, although wealth management continues to recover. As expected, it abandoned its demanding medium-term profit targets, although it has decided not to update these until its November investor day. UBS has also suffered from rogue-trading losses; it pre-announced that the group shall post an underlying loss in Q3 (although a headline profit), but that wealth management is still posting positive net inflows. Its valuation is very compelling for a business with higher than sector-average returns and its wealth management business is a scarce global franchise.   Nedgroup Inv Global Equity comment - Jun 11 Tuesday, 20 September 2011 Fund Manager Comment Despite the increasing level of intervention by policy makers, the underlying economic difficulties faced by the (still) highly indebted developed economies will continue to weigh upon the strength of the recovery. This makes our dependable compounders theme extremely pertinent as we seek to identify and own companies that can dependably grow their revenues, earnings, cash-flows and dividends every year even with a subdued economic backdrop. While no new names were added to the portfolio in the quarter, a number of positions were increased as markets declined and we had the opportunity to add to positions at attractive valuations - in particular Capita, Google, Varian Medical and PPR fit into this category. The first six months of 2011 has seen equity markets range bound with the actions of policy makers encouraging advances in markets, but the statistical data on economic improvement largely countering these positive moves. Within this, our continued focus on "dependable compounders" has paid some dividends with the portfolio tending to lag rapidly rising markets, but outperforming when markets stagnate or decline.   Nedgroup Inv Global Equity comment - Mar 11 Wednesday, 25 May 2011 Fund Manager Comment In this two-speed market Veritas has continued to focus on identifying high quality companies, purchasing them only when they are available at attractive valuations. Most high quality companies that are exposed to "global growth" are no longer attractive from a valuation stand point and we have largely sold those that we held. However, there continues to be high quality bargains available in more defensive growth areas which also seem to be at lower risk of suffering permanent capital loss given their lowly valuations, steady growth and strong cash generation. One such company that we have invested in is Capita, the UK business process outsourcing (BPO) company. Capita is an extremely well managed company and is comfortably the market leader in BPO in the UK with a market share almost four times its nearest competitor. Despite the company's quality, the shares have not performed well over the past year as a result of the exposure of the company to Government contracts (both central and local) during a time of austerity, a lack of large contract wins during the course of 2010 and low exposure to "global growth" (all revenue is from the UK). It is our view that as a result of these factors the shares are now available at attractive levels from where we should achieve a satisfactory real return. We recently met with management who confirmed our understanding of the opportunities that are still available to Capita within all areas in which they operate. Currently, only around 6% of the addressable market for Capita is outsourced with the other 94% being performed "in-house". As Capita believe that they can typically save a company or a government department between 20% and 30% when a process is outsourced as opposed to when it is done in-house (which is usually the prime competitor to Capita), there is considerable scope for growth as companies come to realise these benefits. In fact, even within the government market where many worries are centred, there continues to be material opportunity for Capita. Capita's strength has historically been in designing and operating business processes effectively and at low cost. With a government intent on cutting costs the potential for Capita is substantial. Outside government, the opportunities for Capita also remain attractive, in particular in the financial market where Capita is a market leader in outsourcing back offices. Capita is also developing new markets and capabilities in healthcare (where there is a substantial amount of cost saving potential) and in defence. With our medium-term time frame of 3-5 years, we believe that Capita will again demonstrate that the opportunities available to it are attractive and organic growth will be revived over the next year or two with the company winning some major contracts once again.   Nedgroup Inv Global Equity comment - Dec 10 Thursday, 24 February 2011 Fund Manager Comment The current economic situation has been likened by many commentators to policy makers "kicking the can down the road" in an attempt to shift, rather than solve, our economic problems. This description has seemed appropriate because policy makers have used a range of novel techniques to make money freely available in order to attempt to stimulate a debt driven economic recovery that (they hope) becomes self-sustaining. Most commentators have concluded that the methods used will only provide a short-term solution and that the cost of these stimulatory packages will be substantial in the future. These costs are potentially many and varied ranging from a loss of confidence in policy makers and a lack of faith in paper currencies through to the possibility for high inflation. Kicking the can down the road by encouraging the private sector to once again increase borrowings to finance more consumption is being most actively pursued by the US Federal Reserve, which has undertaken the most extreme policy manoeuvres to attempt to stimulate such a recovery. Actions undertaken to reignite "animal spirits" include maintaining interest rates at ultra low "emergency" levels and effectively printing huge amounts of money to purchase Treasury Bonds (aka Quantitative Easing). However, it is becoming evident that while such policies can have an impact on asset markets, including bonds, equities and currencies, it is much more difficult to have a lasting and material impact on the economy as a whole. The implication of this is that recent policy has created the environment for asset price increases without any meaningful underlying improvement in the economy. It now appears that ever increasing amounts of stimulus from policy makers is having a smaller and smaller impact on economic growth, thereby questioning the usefulness of these policies, particularly given their potential longer term costs. The stimulatory measures may help in the short term by boosting asset prices, but meanwhile the long-term structural problems including unemployment and the high level of public and private debt remain unresolved.   Nedgroup Inv Global Equity comment - Sep 10 Monday, 8 November 2010 Fund Manager Comment Introduction Buoyed by positive macroeconomic data, investors shook off recent jitters and subscribed to a more upbeat global economic outlook. In doing so, markets broke out of stubborn trading ranges and rewarded equity investors with one of the best Septembers on record. Whilst the re-emergence of debt worries in a number of peripheral European countries dampened the mood a touch, distinctly better-than-expected macro data from the US and China, plus increasing prospects of additional quantitative easing, countered fears of a sustained slowdown. Market environment Although indicators lately have pointed to a moderation in the pace of economic growth in the US, a growing sense of optimism returned during September as private sector payrolls, ISM manufacturing data and retails sales all surprised on the upside. Moreover, encouraging tones from the Federal Reserve suggested an extension to accommodative, reflationary monetary policy -a boon to equities. Regulatory uncertainty, rising anti-business rhetoric and continued weakness in the housing market were all largely sidelined as invigorated investors focussed on the positive. In Europe, concerns about sovereign indebtedness resurfaced as Moody's downgraded Spain, and Ireland extended its bailout of Anglo Irish Bank. As the spectre of impending austerity cuts hangs over European markets, economic indicators across the eurozone were mixed: GDP growth was revised up, sentiment improved and money velocity was stronger than expected; whilst consumer demand, manufacturing confidence and industrial production all came in below expectations. In the UK, equities once again performed well on a relative basis as Moody's reaffirmed its AAA status and credited its ability to withstand economic challenges. In Asia, news was dominated by Japan's intervention in the foreign exchange market; its estimated $20bn unsterilized purchase saw the Yen fall 3%. With Prime Minister Naoto Kan now focussed on stimulating the economy, having rebuffed a recent leadership challenge (for the time being, at least), currency strategists are expecting further interventions. In China, industrial production rose substantially and imports showed an improvement, reflecting the underlying strength of the Chinese economy. In South East Asia, stock markets continued to flourish, with Indonesia leading the way up 13.6%. Fund performance Daimler, the owner of Mercedes-Benz, was the Fund's top performer over the month, driven higher by exceptionally strong demand from China. This trend looks set to continue as a recent report from Bernstein Research noted that the number of Chinese with annual incomes over US$100,000 has been increasing at an average rate of 12% a year. Crucially, though, they are buying premium cars at four times the rate of Americans with comparable wealth. Hong Kong based conglomerate Hutchison Whampoa was another of the fund's top performance contributors. The stock rallied sharply over the month thanks to better prices being achieved in recent Hong Kong land auctions and an improvement in performance at its 'Three' 3G mobile unit. Mizuho Financial was the fund's largest performance detractor as continued uncertainty regarding banking regulation and persistent weakness in the Japanese economy dragged on the stock. In addition, recent dilutive equity issuances and worries about non-performing loans have fuelled negative sentiment. However, with markets up and corporate activity on the rise, the outlook is considerably less gloomy. Trade activity Among other purchases, we topped-up our holdings in Apple, Citigroup, Daimlerand Hutchinson Whampoa; trimmed our holdings in BT Groupand Centrica; and disposed of Inteland Sun Hung Kai Properties. Outlook Whilst we are conscious of a potential pull-back following the market's recent rally, we are encouraged by improving macro indicators, continued corporate strength and heightened prospects of quantitative easing in the US and Japan. Plentiful growth opportunities in emerging markets, coupled with reflationary monetary policies in developed markets, should drive global equities higher over the medium-term. However, with concerns about austerity cuts, regulation and European sovereign debt still hovering on investors' radars, volatility is likely to remain above trend. The market's attention now turns to the upcoming earnings season, where the tone of management guidance will be instrumental in influencing sentiment.   Nedgroup Inv Global Equity comment - Jun 10 Wednesday, 8 September 2010 Fund Manager Comment Introduction The heightened volatility observed over the past couple of months persisted into June, with global equities once again struggling to perform. Top-down macro issues led the way as markets were driven by fears of faltering economic growth, double-dip recession and sovereign credit contagion. The portfolio returned -4.72%, underperforming the benchmark MSCI World Index by 138 basis points. Market environment In Europe, concern over weakness in the Eurozone banking sector showed little sign of easing, despite the relatively good news that financial institutions rolled-over a lower-than-expected amount via the ECB's liquidity facility and an announcement that bank stress tests would be conducted. In the UK, June marked the start of a new era of fiscal responsibility with an emergency budget aimed at reducing the public-sector deficit. The news was largely well received by financial markets and ratings agencies. Data from China led to increased nervousness that measures to cool its property market might adversely impact growth. In Japan, data showed that corporate balance sheets had accumulated a record amount of cash; corporate Japan's preference for cash paralleled trends in the U.S. and Europe, where companies continued to boost their liquid assets throughout the year. Economic figures from the US were generally disappointing - but far from calamitous. May payroll numbers (released in June) were weaker than expected, posting a very small increase. It is apparent that recovery in the U.S., thus far, has been mostly jobless. Companies' reluctance to hire, coupled with weak housing data, raised concerns that the recovery was showing signs of fading. Fund performance Among the fund's investments, Centrica performed well. Shares in the owner of British Gas rallied through the month after a number of brokers forecast that profit margins would return to the [higher] levels of the last decade and recent supply data suggested that future earnings will likely exceed consensus expectations. In addition, the stock was helped when fears of a new regulatory tax from the UK government were removed. With 50% of the UK energy market, but just 10% of the repairs and insulation market, we see potential for further unexpected earnings as the company more effectively cross-sells its services, making better use of the British Gas brand and engineer workforce. On the negative side, the fund's holding in Teck Resources detracted - along with the mining sector - as a fresh wave of risk aversion swept through the market. The weakness was due to renewed jitters over the global economy, driven by a combination of weak economic data, anxiety about liquidity problems at European banks and ongoing worries about slowing demand growth in China. On current valuations, we believe these concerns are more than priced into the shares. Another poor performer was Polo Ralph Lauren. The performance of its shares illustrates the indiscriminate way in which markets have sold-off stocks, irrespective of attractive corporate fundamentals. Last month Polo Ralph Lauren reported Q4 earnings significantly ahead of consensus expectations, driven by solid sales growth. However, after a short rally, the stock was sold-off on fears of a global slowdown and exposure to the Euro. We remain confident that these fears are overdone and continue to hold the stock as a long-term strategic investment. Trade activity During June we trimmed our holdings in Credit Suisse, News Corporation and Shell; sold out of Toshiba and opened new positions in FedEx and Vodafone; we added to a number of holdings including Intel and Daimler. Outlook Recent economic figures point to a US economy shifting to a lower gear. Data on auto sales, jobless claims, construction outlays, housing starts, and ISM factory surveys all underscore the fragile nature of the recovery. With tepid growth in the US, the global economy is expected to remain sluggish. Emerging markets, especially those in Asia, are expected to show the strongest growth in the second half of the year. Volatility is likely to continue being a factor until credit fears are alleviated and a more convincing growth trajectory is achieved. In stressed markets, such as these, we maintain our disciplined and consistent approach to investment, whilst remaining ever alert to evolving opportunities.   Nedgroup Inv Global Equity comment - Mar 10 Thursday, 24 June 2010 Fund Manager Comment Global equity markets rallied strongly in March and at month-end the MSCI World Index (US$) was up by almost 10% from its mid-February lows. The selloff at the beginning of 2010 has the hallmarks of a healthy correction (-9.5% from January peak to February trough) and the market has now recovered almost all of the ground it had lost. The economic data continued to improve in March. Merrill Lynch recently raised its forecast for global GDP growth by 0.1% after upgrading growth expectations for Korea, Australia, India and Canada. The US manufacturing ISM index for March came in at 59.6; comfortably above expectations of 57 (any reading above 50 indicates growth). The new orders and production components of the index showed continued positive momentum and manufacturers' inventories expanded for the first time in almost four years, suggesting that restocking is happening, at last. The employment index slipped a little from February's levels but still indicated that manufacturing employment is growing. Similarly, non-farm payrolls for March were slightly below expectations but still showed the biggest monthly gain for employment in three years. If annualised, the ISM (Institute for Supply Management) reading for March is consistent with a 5.9% increase in US real GDP. The portfolio returned 7.60% in March, outperforming the return from the MSCI World Index, which was up 6.25%. The most significant positive contribution to relative performance came from Credit Suisse The Swiss bank has gained market share in prime broking, FX and underwriting in the recent 'flight to quality'. The manager believes this should offer scope for unexpected earnings growth. Other positive contributors to performance in March included diversified Canadian resource producer Teck Resources. Core products include copper, zinc & coal. The stock continued to rise in March, after reporting a return to profit in Q4 09, based on recovering base metals prices. Elsewhere, an overweight stance in Apple also contributed to performance. Although the recently released iPad had varied reviews, satisfactory pre-sales figures helped support the shares during the month. The manager continues to hold the stock as they see potential for rebuilding market share in the PC market, and improving margins with the new 3GS iPhone. Detractors to relative performance included Pfizer. The world's largest drug manufacturer was outbid by Teva Pharmaceutical in the auction for Germanybased Ratiopharm. Ratiopharm would have significantly increased the scope of Pfizer's generic business. Pfizer has been trying to expand its generic business for a number of years. In 2008 the company formed a separate business unit to concentrate solely on products which have lost patent protection. Other detractors over the month included Unilever. The consumer goods company outperformed in Q4 09, and its latest results showed the company gaining ground in emerging markets. Overall, however, tough competition meant that earnings declined, as volume increases were offset by the drag from lower prices. The Unilever position is held based on potential for efficiency improvements following the recent leadership change and re-organisation of the company. In March some gains were made by trimming a number of stocks which had appreciated over the month. Apple, PepsiCo, Unilever and Centrica were all reduced after recording strong gains. The manager also sold out of the holding in global freight delivery company FedEx after it reached its target price. At a sector level, the net effect of the March trades was to move from underweight to overweight financials. The manager has also increased weighting to healthcare, while reducing weights to industrials and consumer staples. From a geographical perspective the Fund has maintained its slight overweight in North America and reduced its underweight in Europe. The Fund has moved to a slight overweight position in Japan and moved from an overweight to a slight underweight in the UK.   Nedgroup Inv Global Equity comment - Dec 09 Tuesday, 23 March 2010 Fund Manager Comment Global equity markets rose in December, as markets shrugged off November's concerns about debt repayment issues in Dubai. Risk appetite returned, volatility fell to its lowest level in sixteen months and many equity markets closed close to highs for the year. In the US, a stream of better data including signs of manufacturing recovery helped the positive tone. All the major indices gained over the month, (Dow Jones +5.89%, S&P 500 +6.96%, Nasdaq +10.57% in Euros). European indices also rose (FTSE 7.32%, CAC +6.96%, IBEX +2.5%, MIB +6.02%) and the DAX (+5.89%) moved over the 6,000 mark for the first time since September 2008. A significant reversal in sentiment in Japan gave the Nikkei momentum (+10.12%). The Hang Seng closed 4.7% higher, having gained more than 50% in the year to date. At a sector level, Technology performed most strongly again, followed by Consumer Discretionary stocks. Underperforming sectors included Materials and Energy, while the prospect of further asset quality issues in the banking sector weighed on Financials. The portfolio returned 2.96% in December, outperforming the MSCI World Index by a relative 1.13%. News of a large capital raising by Hon Hai Precision (tactical) of Taiwan to invest in the business was taken as a sign of rising confidence in the technology sector. Hon Hai assembles a range of products including Playstation consoles for Sony. We believe that the upswing in the cycle combined with the positive effect of recent acquisitions will lead to better-than-expected earnings in the coming months. Other contributors included Seagate Technology (tactical), which produces PC hard drives. The stock reached a peak for the year, as investors priced in changes brought in by the new management and inventory recovery. Outside the tech sector, Unilever (strategic) also came back into favour, with shares gaining over 10% over the month. Investors welcomed news of a new CFO to support Chief Executive Paul Polman. We took some profits, but maintain a position as we see potential for unexpected earnings following the recent leadership change and reorganisation of the company. It remains the largest holding in the portfolio. In contrast, banking stocks such as Credit Suisse (tactical) lagged, mainly due to the amount of capital that has been raised in the sector. We continue to like Credit Suisse, based on its enhanced franchise in areas like prime broking, FX and underwriting in the aftermath of the credit crisis. During the month, we sold our stake in Tiffany (tactical), which had performed well for us, and completed the disposal of the US pharmaceutical company Bristol-Myers Squibb (strategic) after the stock hit its price target. New additions included two US stocks - the soft drink and snack manufacturer PepsiCo (strategic) and Wells Fargo (tactical). PepsiCo recently acquired two of its bottlers, which we believe has the potential to drive better-than-expected earnings, along with productivity improvement in the US and volume growth from international operations. Wells Fargo is the largest US lender. It acquired Wachovia Corporation in January 2009 in a move intended to bolster deposits and home lending. Wachovia's credit losses have been worse than expected, but Wells Fargo appears to have acknowledged these problems relatively rapidly, and we believe that this leaves it well positioned for the recovery. Wells Fargo repaid the US$25 bn received under the US government's Troubled Asset Relief Program (TARP) during the month. The portfolio ended the year with a slightly lower 30-day beta than in November, still positioned to take advantage of any further improvement in market sentiment.   Nedgroup Inv Global Equity comment - Sep 09 Wednesday, 9 December 2009 Fund Manager Comment Global equity markets rose again in September, helped by more signs that the global economy has stabilised. Emerging Markets outperfor (+8.9% in US$ in September)and have now risen by 60% in Q2 and Q3 - the best two consecutive quarters of performanceon record. Signs of economic recovery also contributed to a more positive tone in Europe, with consumer confidence moving higher. US equity markets rose (S&P 500 +3.5%), but ended the month on a weaker note after an unexpected drop in the Chicago Purchasing Managers' survey raised doubts about the strength of the US recovery. Japan's Nikkei underperformedsignificantly (-3.7%) amid concerns about the new government and yen strength. The improvedmacro-environmentmeant that higher beta, cyclical sectors such as energy (+5.3%) and industrials (+5.2%) performed best in September.Technology (+3.9%) broadly matchedthe benchmark,while defensive sectors such as Utilities (+2.4%) and Health Care (+2.2%) underperformed to varying degrees. The portfolio returned 2.3% in September, underperforming the MSCI World Index by a relative 1.72%. Our underperformancewas mainly attributable to some disappointing performance from our Japanese holdings, particularly exposure to the broker Nomura Holdings (tactical). During the month, we reduced exposure to Japan, and had been reducing exposure to Nomura before the company announced an unexpected US$5.6 bn capital increase - its second capital raising within a year. Following the announcement, we reduced exposure further, then bought shares back in the placing. Even so, the sharp decline in the stock price before month end detracted from returns. Although the capital raising was unwelcome,Nomura now has enough capital to expand in the US. Its acquisition of Lehman Brothers' Asian and European operations should bring about a significant step-change in its franchise strength, and prove positive for the company's longerterm earnings prospects as it reduces dependency on its domestic client base. Other Japanese detractors included exporterssuch as Toyota Motor (strategic) and Panasonic (tactical), both of which are vulnerable to the effects of yen strength relative to the US dollar. On the upside, we took some profits at the US luxury retailer Polo Ralph Lauren (strategic), one of the month's major contributors. News of strong sales of the Mac PC in the 'back to school' season helped Apple (strategic)outperform,while the success of the i-Phone contributedto better-than-expectedresults from Hon Hai Precision (tactical), its Taiwanese assembler. Vale (tactical) of Brazil also performed strongly, helped by forecasts of improving demand for iron ore in 2010. We have been exploring opportunitiesin companieswhose profits are correlated with economic recovery, either through operating or financial leverage.We added HeidelbergCement(tactical) to the portfolio at a significant discount to the trading price in a placing. HeidelbergCementis one of the world's largest producers of building materials. It acquired Hanson close to the market peak in 2007, which left it heavily exposed as construction activity slumped in the downturn. At the time, its leverage and family-controlled ownership structure made the company uninvestable, but the situation has now changed. It has refinanced, increased its free float through the sale of shares formerly controlled by the Merckle family, and recapitalised.We believe that HeidelbergCement'shigh operationalgearing will allow it to benefit from a modestuptick in construction activity, underpinned by major government-led infrastructure projects, in the coming months. We also added an overweight in the US defence equipmentproducer General Dynamics (strategic), while shares were trading at around two thirds of 2008-levels. General Dynamics is a market and franchise leader in aerospace design and combat systems, and supplies military equipment to more than thirty countries worldwide.We believe that earnings from General Dynamics' defence arm will prove to be more resilient than expected, and that sales of Gulfstream jets will produce unexpected earnings growth. Disposals included taking profits in the Spanish utility Iberdrola (tactical), known for its focus on renewablesand nuclear generating capacity. As the stock reached its price target, we exited from the company. In financials, we also took profits in the US regional bank Fifth Third Bancorp (tactical) after a strong run. In spite of the risk of a 'double-dip' recession, our base case is that equities have further upside as earnings expectationsare improving,and valuations are reasonablefor this stage of the cycle. The Merrill Lynch one-month global earnings revision ratio has been on a strengthening trend, and rose again in September from 1.26 to 1.37 i.e. 137 earnings upgrades for every 100 downgrades. It is interesting to note that expectations now appear to be moderating again in the Asia Pacific region and the US, but are still positive.   Nedgroup Inv Global Equity comment - Jun 09 Wednesday, 16 September 2009 Fund Manager Comment Global equity markets consolidated in June, after a strong rally in the preceding two months. In the US, the Treasury announced that it was going to allow ten banks, including JPMorgan, Goldman Sachs and Morgan Stanley, to repay a total of US$68bn of government capital that was injected under the TARP programme last year. As US banks have passed financial 'stress tests' and been able to raise US$100bn of capital on the open markets, the news added to growing confidence in the financial sector. Further positive news came in the form of higher than expected US auto sales, a lower than expected fall in US house prices and higher than expected US housing starts. In Asia, the Chinese Purchasing Managers' Index continued to rise, showing manufacturing industry expanding. Japan, Taiwan, South Korea and India also reported industrial output on a rising trend. However, despite the higher oil price, the IEA cut oil demand forecasts which caused a sell off in energy stocks. US unemployment continues to rise at a faster rate than expected, and in Europe, shorter working weeks and paid leaves of absence are masking weak employment conditions. Western central banks continued to keep interest rates close to zero and western governments are suffering from deteriorating fiscal positions. During June, the Fund returned 1.71% compared with a return of -0.41% for the Morgan Stanley Capital International (MSCI) World Index. Key contributors included two financial stocks - China Construction Bank and Nomura. China Construction Bank is China's largest lender, and is expected to benefit from measures designed to revitalisethe property market. CCB is also planning to expand rural banking services in association with Banco Santander of Spain. Shares outperformed, and we locked in some gains in June. An overweight in the Japanese bank Nomura also added value. The company has been working to integrate units acquired from the failed US bank Lehman Brothers. Since then, signs of stabilisation in the banking sector have underpinned a rally, based on prospects for earnings recovery. On the downside, the integrated energy company ConocoPhillips detracted. The company has positioned its business to adapt to the economic downturn, cutting capital expenditure and focusing on costs. Although we see potential for shares to gain if the rebound in the price of crude proves sustainable, we trimmed our overweight after shares fell to reach our stop-loss. Shares in the Japanese shipping group Mitsui O.S.K. Lines also fell, as optimism over improved pricing in the bulk shipping market dissipated towards the end of the quarter. We are reviewing this position, and following developments in the dry-bulk market closely. Portfolio changes included adding an overweight in the US pharmaceutical producer Pfizer. The stock, which has been held in the portfolio before, was added on a tactical basis. According to our analysis, the stock was trading below the bottom of a target range where the share price suggests complete failure of the pipeline of drugs in development. We read this as a technical 'buy' signal. At this point, we see potential for the share price to appreciate with a low level of associated risk. We also opened a new position in the Spanish utility Iberdrola. The company has reduced its debt, which should protect its dividend. It also has the benefit of generating two thirds of electricity output from nuclear and renewables, which means that it is able to protect margins if the oil price rises. We exited from the US telecoms company AT&T. Weakness in traditional fixed-line and business services reduced the prospects of an earnings surprise, and we wanted to reduce the defensive bias within the portfolio. At strategic level,we have now reached a position where the Fund's beta is more neutral, having previously had a defensive bias. Given that investor sentiment is fragile, particularly as we enter a seasonally weak period for equities, we remain watchful and continue to monitor our portfolio closely. In the current climate, we are concentrating on high-quality, well-capitalised companies with strong balance sheets, good cash flows and potentially sustainable dividends.   Nedgroup Inv Global Equity comment - Mar 09 Tuesday, 9 June 2009 Fund Manager Comment After initial declines, major markets advanced over the month - the S&P 500 had its best one-month percentage gain (8.5%) since October 2002. The MSCI World Equity Index gained 7.6% for the month. NIF Global Equity Fund rose 2.56%. Earlier in the month, the World Bank cautioned that the global economy will shrink in 2009 for the first time since World War II. Trade, it predicted, is set to fall to its lowest point in 80 years in 2009, as economic hardship ripples across the globe. Amid the welter of bad news, it only took an internal memo from Citigroup's CEO - revealing that the beleaguered bank was off to a good start in 2009 - to trigger a very sharp bounce in equity markets globally. Arguably, the real catalyst was that markets had simply become oversold, a point at which they may have hit three weeks prior, with sentiment indicators reaching extreme lows. The rally was spurred on by short covering, with financials and cyclicals outperforming significantly at the expense of defensives. It was given further impetus by positive reactions to the Federal Reserve's programme of quantitative easing, a new rescue plan for the banks from US Treasury Secretary Timothy Geithner and a smattering of better-than-expected US macroeconomic data releases, notably unexpected growth in durable-good orders and new-home sales. The portfolio's exposure to Continental Airlines proved to be the largest detractor. Continental issued an update to its guidance, advising that it expected March Passenger Revenue per Available Seat Mile (PRASM) to be down more than 18% year on year. (Subsequently, Continental reported a March mainline PRASM decline of 18.5-19.5%.) However, at current oil prices, Continental, which has a fuel-efficient fleet, should see its cash flow improve compared with 2008. The position has been sold. The largest contributor to performance was the holding in Polo Ralph Lauren. The retailer has been buying back licences and content from partners that had under invested in the brand, thereby suppressing revenues and margins. In respect of the financial year, this greater operational control is expected to deliver a double-digit increase on last year for its European business and a 122% rise on 2003 when the European division was established. During the month, company set a regular quarterly dividend of $0.05 per share. Performance was also enhanced by the holding in Apple, the US consumer-electronics company. Apple, which unveiled its new iPhone software and applications development kit, is expected by some analysts to announce a new iPhone model at its developers conference in June. (The event will also focus on Snow Leopard, the forthcoming operating system for Mac computers.) We are concentrating our investments on high-quality, well-capitalised companies with strong balance sheets, good cash flows and potentially sustainable dividends. Our investment process is focused on identifying companies that have the potential to deliver positive earnings surprises. Over the coming months, we will continue to apply our investment process: both when monitoring existing portfolio positions and when looking for new investment opportunities.   Nedgroup Inv Global Equity comment - Dec 08 Monday, 30 March 2009 Fund Manager Comment Manager commentary Neil Rogan - Gartmore Investment Manager Ltd NIF Global Equity Fund returned 2.07% in December, while the MSCI benchmark was up 3.26% for the month. Since inception of the Fund, November 2008, the performance is -2.72%, while the MSCI returned -3.85% over the same period. Equity markets continued to be volatile in December, although the VIX, a measure of volatility, came off its highs to trade around 40 towards month-end. Some major markets even advanced over the month. Acknowledging that the outlook for economic activity had weakened further, the Federal Reserve cut its key interest rate from 1% to a range of between zero and 0.25%, nearing the zero-rate policies that Japan used in its own fight against deflation in the 1990s. The Fed stated that it "will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability." In particular, it advised that weak economic conditions were likely to warrant exceptionally low levels of the federal funds rate for some time. Earlier in the month, the European Central Bank (ECB) cut its benchmark rate by 75 basis points amid a worsening economic outlook. Although this was a large reduction, the ECB has hitherto maintained a more hawkish stance. The Bank of England delivered another rate cut, a reduction of 1.0% to 2.0%, taking the cost of borrowing to its lowest level since 1951. President Bush sanctioned a last-ditch financial rescue of General Motors and Chrysler The $700 billion Troubled Assets Relief Programme (TARP) - originally intended to provide succor to Wall Street - is being tapped for loans to the troubled car makers. Demand destruction and fears of a deeper recession sent the price of crude oil tumbling down to below $40 a barrel in December. During December, the Fund underperformed for the Morgan Stanley Capital International (MSCI) World Index. The exposure to HSBC Holdings proved to be the largest detractor. Shares in HSBC came under pressure amid speculation that it may have to raise $14 billion to recapitalise. Additionally, there were concerns that HSBC's premium rating could be under threat because of the bank's potential $1 billion of losses in a suspected pyramid fraud scam run by ex-Wall Street heavyweight Bernard Madoff and worse-than-expected credit deterioration in its UK home market. Despite recent difficulties, we believe HSBC, as a stronger institution, should remain able to fund its lending from deposits and is not expected to need to shrink anywhere near the degree to which wholesale-funded banks have already. The largest contributor to performance was the holding in Continental Airlines, which is already benefiting from lower fuel costs. In particular, Continental should benefit from its less aggressively hedged 2009 jet fuel consumption. Performance was also enhanced by the holding in German utility E.ON. As part-settlement of an anti-trust case brought by the European Union, E.ON agreed to sell over 2,200 MW of generation capacity to Belgian rival Electrabel and German peer EnBW Energie Baden- Württemberg. Investors can expect to face a succession of negative news flow in the coming months. However, there is every prospect that markets will stabilise before the flow of bad news reduces. Looking beyond the negative headlines, there is currently no shortage of good investment ideas and many are remarkably priced. In the current environment, we favour companies with strong cash generation and those companies whose earnings, we believe, will prove defensive during the present slowdown. We also like stocks that we think will emerge from the current crisis with stronger franchises. Also of interest are corporates whose shares are trading on low valuations where much of the bad news is arguably already in the price.   Fund renamed Tuesday, 30 December 2008 Official Announcement The Nedgroup Investments Absolute Growth Fund has been renamed to Nedgroup Investments Global Equity Fund.   Nedgroup Inv Absolute Growth Comment - Jun 08 Monday, 1 September 2008 Fund Manager Comment Markets in June found themselves faced with a credit crisis, a real estate crisis, a consumer-leverage crisis and an oil crisis. But at the forefront of investors' minds was the spectre of inflation or worse, stagflation. Better-than-expected news on the growth side (mostly from the US: retail sales, business confidence and exports data were all ahead of forecasts) was largely ignored as ever-increasing oil prices pushed up risk aversion levels; while not quite at panic proportions, the equity sell-off that resulted was vicious indeed. In Europe, stocks lost more than 12%, UK shares were 10% down, and the US market fell by 8%. NIF Absolute Growth Fund lost 7.18% in June, taking annualised returns since May 2005 (the inception of the new mandate) to 3.78%. Food and energy price rises are lifting headline inflation numbers around the world. While economists and analysts may prefer to look at core inflation (which has not yet risen dramatically), investors and consumers are finding it harder to ignore the evidence that confronts them every day at the petrol pump and grocery store. This can quickly lead to rising inflationary expectations and set off an upward spiral in prices. Central banks are desperate to avoid this, and have been talking tough. So far wage inflation is being kept in check, and rates have not yet been hiked. However, markets are discounting imminent rises. The risk of a policy error is rising. With economic growth set to slow as the lack of access to credit works its way through to the real economy, deflationary policies are probably not required. But on the other hand, authorities need to do something to contain the oil price…. Despite all the economic doom and gloom, there are a few positive factors to encourage equity markets. Corporate balance sheets are quite strong (except for banks), M&A activity is continuing (especially in the small-cap space, and in specific sectors), exporters are doing well (especially those in the US, as well as Europeans exporting to emerging markets and oil producers), and infrastructural spending continues. Meanwhile professional investors are exceptionally bearish. According to the latest Merrill Lynch Fund Manager Survey, cash overweights are at record levels. Valuation spreads are now more than two standard deviations wider than normal. On the negative side, this is because the cheap stocks favoured by managers of funds in NIF Absolute Growth's portfolio have become cheaper still, but on the positive side, it implies that there are plenty of opportunities to invest in attractively valued, healthy companies operating in growing industries.   Nedgroup Inv Absolute Growth Comment - Mar 08 Thursday, 22 May 2008 Fund Manager Comment The fund was down 3.55% in March. Since inception of the absolute return benchmark, the fund has returned an annualised 5.54%. Global financial markets are being driven by developments in the United States. In March, the Federal Reserve bank proved that it had both the willingness and the ability to preserve the US banking system. The decisive action to provide $30bn of guarantees which enabled the takeover of Bear Stearns probably prevented further sharp falls in world equity markets. In other actions, the Fed cut the target Fed funds rate by 75bp to 2.25%. It also extended a borrowing facility through the Discount window, usually reserved for commercial banks, to all bond dealers. This facility has been tapped for $30bn in the past few weeks. Further, the Fed has agreed to take a wider range of securities from investment banks as collateral for short-term borrowing. These actions have served to stabilise the banking system and financial markets generally. The primary beneficiaries of the new environment are the banks; they need every bit of help they can get. The loose regulatory environment of the past few years allowed banks to leverage their equity to dangerous levels. Goldman Sachs and Merrill Lynch are 25 to 30 times leveraged. In the good times, this posture generated very high returns on equity. In an environment where credit-related asset prices are falling, the leverage is working against them. Though the banks may reveal further credit writedowns, the market now believes that the credit markets can begin to work again. The new environment provides a positively sloped yield curve, which is the bread and butter of the banking industry. This will help to recover some of the losses. A minority of prime and sub-prime borrowers will also be helped by the lower interest rate environment. Many of them face interest rate resets this year on adjustable rate mortgages and will welcome the lower USD Libor and T-Bill benchmarks. USD Libor has fallen from 5.5% late last year to 2.70% now. However, conditions in the wider mortgage market are not conducive to a housing recovery. Consumers do not yet have access to this cheap money. Borrowing rates for 30-year fixed rate mortgages are still at 6% or higher, and lending standards are tighter. It will take some time for the Fed's actions to provide support for house prices. In the short run, house prices are falling and a consumer led recovery for the economy is well into the future. The US stock market fell for five months in a row to the end of March, the longest such string of negative months in many years. Almost all stock markets and risky assets around the world moved together during this volatile period. In bad markets, correlations go to one. Now that there is potential for relief, we should expect to see increased differentiation; as generic market volatility diminishes, local market fundamentals will reassert themselves as drivers of performance. Some sectors and assets have been driven to price levels, which are unjustifiably low, and some selective but perhaps choppy recovery, can be expected. The Fed has taken the right actions to date. Investment banks are safer now that more emergency funding windows are open. Interest rates probably will be cut further. But there is a lag time for the full effect of rate cuts to be felt in the wider economy. In terms of growth prospects for the US economy and the volatility, which may surround the continued uncertainty, we are not out of the woods yet.   Nedgroup Inv Absolute Growth Comment - Dec 07 Monday, 25 February 2008 Fund Manager Comment NIF Absolute Growth Fund lost 0.59% in December. Annualised returns have been 10.15% since the mandate change in May 2005 with volatility just below 9%. This equates to a Sharpe Ratio of 0.61. In the US, current indicators remain firm. Retail sales were strong in November, and Q3 GDP growth (initially better than expected as noted in this commentary last month) was revised upwards. The weaker dollar is boosting exports and supporting the GDP. But the risk of a recession is rising. Of most concern is the fact that corporate profits seem to be falling, and high operational and financial leverage will exacerbate any earnings contraction. Weakness at the corporate level is widening into capital spending, and may also depress hiring. Personal consumption has already begun to slow. Despite these risks, decisive action by the Fed should see a recession averted. Indeed, the Fed did cut rates by 25 basis points in December, and their rhetoric is indicating less concern about inflation, and more concern about credit issues. The market was initially disappointed at the size of the rate cut, but was cheered the following day when, in a coordinated effort, the central banks of the US, Europe, Switzerland and Canada made it easier for banks to borrow money without the stigma of going to the discount window. This has shown the willingness of the Fed (and other central banks) to take action, through unconventional means if necessary. UK rates were reduced in early December as well, and despite lingering inflation concerns (firm economic activity, rising oil and fuel prices), the potential for further cuts is high. A credit crunch could hurt badly in the UK: the household sector is running a significant cash flow deficit, household debt is at an all-time high, and the housing market is starting to correct, reducing the mortgage equity withdrawal boost to consumption. European rates were left unchanged by the ECB, which released a hawkish statement. Indeed, inflation in Germany is rising already. However, the possibility of rate cuts will have to be considered. Like Japan, Europe is reliant on external demand and is therefore vulnerable to a global slowdown. While they do export much more to the East than to the US, the "Asian De-coupling" argument (that Asia can stay strong in the face of a US downturn) is by no means a safe bet. Speaking of Asia, inflation in China is now at its highest level since 1996, and there is a risk that it becomes entrenched. Measures are being taken to tighten credit, but of course this may be at the cost of slower future growth. While sub-prime pressures still remain, investors have been reassured (to some extent) by the capital-raising exercises undertaken by many global banks last month. While the financing costs may be high, at least current liquidity issues have been addressed. In most cases the funding came from Asia or the Middle East, which gives credence to the "sovereign wealth put" argument.   Fund renamed Wednesday, 5 December 2007 Official Announcement The Nedgroup International Investor Series International Equity fund has been renamed to Nedgoup Investments Absolute Growth Fund.   NIIS International Equity comment - Sep 07 Friday, 26 October 2007 Fund Manager Comment The fund generated a return of 3.27% in September. Over the last 12 months, the fund has earned 13.31%. Since the change in mandate in May 2005, annualised returns have been 13.71%, with volatility of 8.42%. Global financial markets have been hit by a disorderly re-pricing of risk over the past three months. Lending standards have tightened and lending has dried up across large parts of the credit spectrum. Central banks correctly intervened to provide liquidity to the banking sectors. The US Federal Reserve Bank lowered the Discount rate from 5.75% to 5.25% in mid-August. This was the signal that the markets were hoping for and sharp stock market declines were reversed. The ECB and the Bank of England pumped massive amounts of liquidity into the financial system. The Fed went on to cut the Fed Funds target rate by 50 basis points on September 18th. Equity markets also responded very positively to this move; by the end of September, many equity market indices were approaching new highs for the year. Regardless of the fundamentals in individual economies, almost all stock markets around the world moved together during this volatile period. Equity market pricing is a barometer for risk appetite. Universal appetite for risk and risky assets has declined over the past few months. Following the problems in the sub-prime mortgage market, credit spreads have widened substantially for all but the safest credits, and significant segments of the money markets have not functioned normally. Tighter lending standards and large unsold inventory will mean that the US housing market will remain under pressure for some time to come. Payroll growth is slowing and US GDP forecasts are being revised downward. It is not possible to forecast with certainty whether the slowdown will result in a soft landing or a hard landing (recession). On the positive side, equity valuations remain reasonable, earnings growth is still positive, companies have solid balance sheets and are generating cash. The recent volatility in the price of risky assets is symptomatic of the late stages of a business cycle. The Fed's recent "emergency" rate cut could be analogous to a similar move following the Long-Term Capital Management induced liquidity crisis of late 1998. Following that difficult period, markets recovered and the bull market in risky assets experienced a final leg up. Business cycles and bull markets can extend. Though there may be no cause for immediate concern, recent market activity has increased the probabilities that we are in the late stages of a bull market. In terms of asset allocation, the conclusion is the same - caution will be rewarded in the long run. Investors who have capitalised upon the fantastic performance in equity markets and credit spread product over the past four years, should be thinking about taking some risk off the table. But as the prices of risky assets move higher, the risk increases and potential reward diminishes. The most prudent course of action is to lock in some profits or set price targets to accomplish this. A program of selling risky assets at progressively higher levels and switching into more defensive investments is the right one at this stage of the economic cycle. We continue to maintain a defensive posture in the fund. Increased volatility generates inefficiencies and greater opportunity sets for our managers and the fund is well placed to deliver good risk adjusted returns going forward.   NIIS International Equity comment - Jun 07 Tuesday, 25 September 2007 Fund Manager Comment The main feature of global markets in June was a sharp rise in bond yields early in the month. The sudden re-pricing reflected a view that global growth is improving again, with Q1 having been the low point for economic activity. Inflation risks remain, though: capacity utilisation is high, the labour market is tight, and food, energy and mortgage costs are rising. Expectations of lower US policy rates have at least been deferred, with markets pricing in no chance of a cut until 2008. Against this backdrop, companies have delivered better-thanexpected earnings, although earnings growth is at a slower pace than before. With dividend yields quite high relative to real bond yields, equities remain attractively valued relative to bonds. However, with the rise in interest rates, this is not as compelling as before. Could this be the beginning of the end for the wave of leveraged buyouts that has boosted markets in recent months? Equity markets were initially hit by the bond sell-off, but then rebounded. This pattern then repeated itself, leaving global equities generally lower for the month. Investor risk aversion is currently very low. For instance, hedge fund net equity positions are at extreme levels. While average share valuations appear reasonable, median equity valuations are high. This implies that small- and mid-cap stocks are overvalued relative to larger stocks. There are now some indications that investor attitudes are changing; the FTSE 250 (mid-cap) index fell sharply against the FTSE 100, and credit spreads widened during the month. Japanese equities remain undervalued relative to US, European and emerging markets. In the latest round of earnings reports, companies were decidedly gloomy in their outlook, but since then analysts have been revising their own forecasts upwards. Household consumption and unemployment levels are better than expected, and companies are beginning to enjoy some pricing power. Chinese equities were volatile during the month, but other regional markets were relatively steady, as investors looked through to underlying fundamentals: Asian economies are doing well and corporate earnings are rising nicely; valuations are rising but not stretched. NIIS Equity has delivered over 20% in the past 12 months, and more than 15% on an annualised basis over 2 years.   NIIS International Equity comment - Mar 07 Wednesday, 23 May 2007 Fund Manager Comment Having benefited from timing differences in February, NIIS Equity's returns slipped back in March, with the fund delivering -1.08%. Volatility in global equity markets continued in the first half of March, but concerns appear to have been forgotten by the end of the month, with the MSCI World Index ending up 1.6%. We commented on the catalysts for this volatility last month, noting the previous complacency of investors as a contributing factor. Despite this warning from the markets, it seems complacency has not yet gone away. Corporate credit spreads are as tight as ever and the VIX Index (a measure of the expected volatility of S&P500 stocks) has fallen back to the mid-teens, having traded only just above 20% during the month: hardly heart-stopping levels! Part of the reason for the market's optimism is the health of the US corporate sector. Balance sheets are robust, growth prospects still seem good, and equity valuations are attractive. On the macro front, income and spending data were better than expected; the consumer juggernaut keeps on rolling. But the US Fed, at least, appears to have acknowledged that there are risks present. Although rates were left unchanged, their statement after the last FOMC meeting indicated their concerns on economic growth. The full effects of the subprime mortgage issue have yet to be seen: lending standards are being tightened, which may well extend the housing slowdown. In turn, equity withdrawals could fall removing a large chunk of discretionary spending from the economy. In the meantime, corporate activity continues apace and has begun to extend to large cap stocks. Hot on the heels of the buyout of TXU in the US comes the blockbuster ABN Amro/Barclays merger. Other activity in the UK last month included bids for Sainsbury's and Boots Alliance. Investor complacency was highlighted by the outperformance of already over-valued areas like mid-caps and traditionally defensive sectors. During the month, two members of our team spent a week visiting fund managers in Japan, Singapore and Hong Kong. Although we found a healthy number of differing viewpoints, we perceived a strong sense of optimism in the Japanese market. The Bank of Japan raised rates early in the month, taking advantage of the strong growth in GDP in Q4 2006, and signalling its confidence in the health of the banking sector. Average land prices have risen for the first time in 16 years; although this appreciation was strongest in Tokyo, encouragingly the growth was felt in other regions too. Consumption, for so long the missing link in the Japanese economy, looks set to improve, with positive employment and remuneration trends. On the back of healthy earnings growth, dividends are rising, both in terms of payout ratios and in absolute terms. Corporate activity is beginning, and will soon be boosted by some regulatory changes. These factors should all support the equity market in the months ahead. Since the move to the absolute return benchmark 23 months ago, NIIS Equity has delivered annualised returns of 15.2%.   NIIS International Equity comment - Dec 06 Tuesday, 13 March 2007 Fund Manager Comment After December's strength, equity markets started the year in slightly more muted fashion. NIIS Equity posted a solid 0.76% for the month. With the US housing market stabilising, attention has turned to the tightening labour market which should help to boost growth. At the same time, the falling oil price should help reign in inflation. Against this backdrop, the Federal Open Market Committee voted to keep interest rates steady at their month-end meeting, cheering markets. Equity valuations are not too demanding, and corporate earnings growth is robust. In fact, 64% of the companies which have reported Q4 results so far have exceeded expectations, while only 19% have disappointed. If the (disquietingly narrow) consensus view for a soft landing is eventually realised, there is plenty of scope for positive equity re-rating. European equities are still being boosted by excessive levels of liquidity, but economic fundamentals are positive. The US slowdown has had little impact; in fact, unemployment is falling and domestic demand rising. This is likely to lead to strength in the housing market and potentially broader asset price reflation. Interest rates are unlikely to be hiked in February, but the market is anticipating a rise by the middle of the year. UK interest rates were unexpectedly lifted early in January. The Bank of England acted to curb the continuing credit boom which has fuelled significant house price appreciation. Wages are also rising, as are GDP growth and inflation. Equity markets were unphased by the move, though, preferring to focus on continuing M&A activity. Although equities are generally modestly priced, certain sectors are becoming quite expensive as investors incorporate bid premia in their valuation models. In Japan, business confidence is running high. Financial soundness is encouraging investment in equipment and human capital. Unemployment is falling and there are reports of labour shortages in the service sector. However, salaries are not rising, limiting consumption growth. So far, this has been sufficient to prevent the Bank of Japan from raising rates, although they are eager to normalise monetary policy as soon as possible. With rates failing to rise, the Yen has weakened and the export sector continues to do well. Finally, Asian markets are still benefiting from high levels of liquidity. Strong US GDP growth, lower oil prices and prospects for further local currency appreciation are all positive for corporate earnings. However, equity markets have priced in the good news already, and so downside risks are mounting. Since the move to the new absolute return benchmark 21 months ago, NIIS Equity has delivered annualised returns of 16.3% with a volatility of 8.5%.   NIIS International Equity comment - Jun 06 Tuesday, 28 November 2006 Fund Manager Comment Following the weakness experienced in May, global stock markets appeared set to continue their draw down in June. Indeed, within the first two weeks of the month, the MSCI World index had lost 6% of its value, following the 3.5% it lost the previous month. However, that marked a turning point, and markets staged a strong recovery, especially in the final days of the month, to end in or very close to positive territory. Throughout June, the market focus was on the Fed. An increase in rates had clearly been discounted by the market, and this was confirmed in the third week of the month. But perhaps more important than the event itself was the market's willingness to cut new Fed Chaiman Bernanke some slack: stagflation fears have eased as it has become apparent that the Fed will target inflation aggressively, while at the same time, economic data is showing renewed signs of strength in the economy. Fears of an imminent collapse in the housing market have also waned. Aside from this positive leadership from the US, equity markets around the world found support as value began to emerge at the lower levels. As markets stabilized in the latter part of the month, bargain hunting became the order of the day. Many investors held excess cash in their portfolios, and when it became apparent that prices were unlikely to crash, they deployed this selectively back into equities: most popular were liquid, large cap names in developed markets. As sentiment improved, buyers became more willing to bid up the prices of these stocks, and global markets rose over 4% in the final two days of the month. NIIS Equity suffered a considerable draw down during June, and appears to have under performed equity markets quite substantially. However, this underperformance has been exaggerated by timing issues revolving around fund pricing methodologies, and will be reversed in the July data. Having analyzed the actual calendar month performance data, we believe the true underperformance to have been less than 1% (Please refer to the Annexure for a more detailed review). While this is still below par, it does not constitute cause for concern. To remain true to the absolute return mandate, the portfolio is built around a core of funds with a value-based philosophy. Managers select shares on the basis of discounts to asset values or earnings and a belief that the market will ultimately recognize and reward their true potential. Earlier in the year the market's strong rally had been led by shares of this type, and the fund has enjoyed the benefit of this. However, in the downturn of May and June, the market sold first (fairly indiscriminately) those shares which had performed best up to then, and this dragged down the fund's performance. As noted before, investors perceive value in equity markets, and we believe the funds in the portfolio are well positioned to take advantage of mispricings as fundamentals return to the top of   NIIS International Equity comment - Sep 06 Tuesday, 28 November 2006 Fund Manager Comment September proved to be a continuation of the equity rally that started in August. The funds held in NIIS Equity also benefited from the market rotation that has seen capital flow out of energy and commodities and into other sectors. The equity markets in the US and Europe reached levels not seen in 5 years. The main driver was the fall in oil prices, which translated into a slowdown in cost increases for the manufacturing sector. During the month, oil prices decreased by as much as 10.65%. Other commodities including Gold and Copper followed suit. This further eased recent concerns about inflation in the US. The picture was however not as rosy as the market moves may have indicated and some uncertainty remains feasible. The US housing market is showing signs of a price slump. Economic growth is threatening to slow down and manufacturing in the US has expanded at the slowest rate in more than a year. In the UK, the picture remains mixed with a still buoyant housing market, which might push the central bank to continue its rate tightening. At the same time, consensus forecasts suggest Euro zone growth will slow from 2.3% this year to 1.8% next year. Even Japan has showed signs of a slowdown with lead indicators easing back in the past few months. As a result and despite steady gains in the market, investors' risk appetite (as calculated by Credit Suisse) has reached a 2˝ year low. This is in sharp contrast with May this year, when the same indicator reached a 20 year high, indicating overconfidence. The current level could indicate a more sustainable trend. In practice, this sentiment has also resulted into a move by investors out of certain sectors, namely energy and commodities and into more defensive industries. The move was further aggravated by the temporary downward pressure on energy related futures and equities created by the Amaranth debacle. Equities in the energy companies that were rumored to have been held by the troubled hedge fund were instantly punished in anticipation of a liquidation of Amaranth's large positions. The sectors that benefited from this rotation, like food and beverages, healthcare, telecommunications and utilities, had been undervalued for a long time and are at the core of the portfolios of the value-oriented stock pickers. This has resulted in substantial out performance for the managers in NIIS Equity compared to their local relative benchmarks. Over the past 12 months, the NIIS Equity fund delivered a return of 11.21%, vs the benchmark return of 2.77%.   NIIS International Equity comment - Mar 06 Wednesday, 10 May 2006 Fund Manager Comment The NIIS Equity fund recorded a solid return of 1.72% for the month of March and has risen 6.23% year-to-date, thus comfortably beating its benchmark. Global markets continued their positive start to the year still driven by corporate activity, particularly in Europe where the electricity sector saw a spate of proposed deals. While Europe saw strong gains, Japan also made up some lost ground from previous months with the strength of the Yen in March benefiting overseas investors. The US market remained resilient despite the interest rate cycle perhaps extending further than originally thought - futures are now indicating twelve-month rates above 5%. A return of 2.24% by the MSCI World Equity Index provides some market context. The US managers fared reasonably well with our small cap manager performing particularly well on the back of a strong rally in the smaller capitalisation sector. Two funds were helped by their high weightings in energy, as oil prices moved back up to peak at $66 per barrel for the month. Another fund, which has lagged so far this year, bounced back helped by better news flow for internet-related stocks, especially Google after Standard and Poor's said the company would be admitted to the S&P 500 index. European markets continued to move up during March despite the European Central Bank raising interest rates for a second time this year. Corporates continued to deliver strong earnings and are increasingly using strong cash flows to finance acquisitions. Managers in this region recorded good gains, with some now starting to sell stocks where the valuations are less compelling and where positive newsflow has tailed off. Recent good economic statistics and a fiscal year-end rally in Japan helped both the Nikkei 225 and the Topix indices clear new highs for the year, with the latter in fact reaching its highest reading since the beginning of 2000. Our multi-cap fund benefited due to a better equilibrium between large and small caps this month, although the market's preference for bluechips continued. Fears of rising commodity prices and ongoing interest rate concerns did not stop Asian markets from going up. Our manager, who fared better than the market, has added some good quality Taiwanese tech stocks as well as financial companies in Thailand which are out of favour at the moment. On the whole NIIS Equity performed well and in line with our expectations by participating in around 75% of the market upside this month while keeping intact its strategy to protect on the downside.   NIIS International Equity comment - Dec 05 Monday, 13 March 2006 Fund Manager Comment The NIIS Equity fund had a strong start to the year and posted a return of 3.72%. After a disappointing month for the US market in December, Wall Street began the New Year in a buoyant mood with the Dow Jones finishing at its highest level for four and a half years. US equities rose as the minutes from the December meeting of the FOMC hinted that interest rates may reach their peak helping raise hopes that economic growth would remain strong throughout 2006. In stock specific news several broker upgrades to internet search engines Google and Yahoo boosted their share prices, although later on in the month this good fortune sharply reversed for Google as it was feared that the company may miss analyst estimates for the quarter. The majority of our US managers posted strong absolute performance for the month helped by good news in the technology and energy sectors - the oil price incidentally continued to hover around USD65 helping many of the major oil companies such as Exxon Mobil. The European and UK markets continued into 2006 in a positive mood with rising hopes of economic growth and receding fears of inflation. There were, however, some deviations in the market upswing during the month such as the early release of German Government growth estimates for 2005 which implied a weaker than expected Q4, and a terrible few days for the telecoms sector with most operators hit by France Telecom's profit warning. Our funds recorded impressive performance for the month with one of our managers (with a large bias in financials) recording a gain of over 11%. After a very volatile month the Japanese market managed to finish the month with a good return following on from the upbeat trend of the last few months. The sharp correction mid-month was largely attributable to the Livedoor scandal where the managers of the company were arrested following an investigation. The result was a collapse in the company's share price and a contagion effect on the market in general and the Mother's smaller cap index in particular. Our Japanese managers held up pretty well when the market tumbled and managed to perform well once the market rebounded. Our small cap growth fund particularly struggled in this environment, but did well to recoup losses during the month. Our Asian funds recorded strong performance for the month, despite some volatility during the month on the back of rising oil prices and the Livedoor scandal in Japan.   NIIS International Equity comment - Sep 05 Wednesday, 26 October 2005 Fund Manager Comment The NIIS Equity fund gained 2.07% in September. Global equity markets trended higher in September despite continued rising oil prices on the back of concerns over the economic impact of Hurricane Rita. With a substantial proportion of America's oil production and refining capacity situated in Rita's path, fears that oil supplies would be damaged sent the oil price back up towards last month's record high and reignited worries about the economic impact of sustained fuel costs. Given these economic concerns US investors were disappointed at the Federal Reserve's decision to continue tightening monetary policy after the central bank announced its eleventh successive quarter-point interest rate rise to 3.75%. On the whole our US equity component held up strongly in the challenging market backdrop. Generally positive news from the corporate world helped to limit losses as banks in particular were buoyed by strong quarterly results. A bout of merger activity in the internet and technology sectors also helped lift investors' moods slightly. Our deep value manager lagged its peers this month due to its overweight exposure to insurance companies and retailers, which suffered following disappointing guidance from a number of major players. Our European allocation posted impressive gains this month on the back of strong European stock market performances. The German DAX rebounded heavily in the last week of the month as investors decided that the country's political stalemate would not prevent restructuring taking place at a corporate level. The growth bias within our UK allocation continued to reward us. Our managers are finding attractive opportunities in areas that are seen as being dominated by growth stocks such as technology, telecommunications and particularly, media. In Japan, September was the most positive month since March 1999. The Topix index rose by more than 11%, led by the banks, brokers, steels, autos, trading companies, machineries, real estate and construction, while electronics and the utilities were among the big losers. Large caps outperformed on the back of a strong flow of funds coming from all across the world. Our large cap manager recorded a gain of 13%, helped by its overweight exposure to financials. Growth and commodity related Asian markets, particularly Korea, fared well. However the rest of Asia treaded water with interest rate sensitive markets under pressure due to the Fed's hawkish view.   NIIS International Equity comment - Jun 05 Wednesday, 31 August 2005 Fund Manager Comment The NIIS Equity fund returned 3.74% in June. Global Stock markets managed to overcome nervousness caused by the terrorist attacks in London on 7th July to end the first week of the month decisively higher. All in all, markets have rallied strongly since then helped particularly by buoyant US market data. Investor confidence was lifted by stronger than expected June employment numbers, positive corporate reports and lower oil prices. A return of 3.43% by the MSCI World Equity Index provides some market context. Our US equity component made a weighty contribution to performance this month. Those managers with high exposure to technology were particularly helped as the sector touched a new high for the year following positive earnings reports from Advanced Micro Systems and Apple. Despite a rollercoaster ride of a month for European markets, our European funds managed to produce solid returns in July. Thanks to a recovery in steel demand, stocks in this area rallied as did auto stocks on the back of slightly lower oil prices. After much deliberation we have decided to remove one of our UK funds from the portfolio: a period of dramatic underperformance led to a loss of confidence, lack of conviction and a degree of style drift by the manager, which are unacceptable. Falling unemployment, a rise in industrial output and higher housing starts contributed to a favourable market environment in Japan. Our funds fared well due to their small /mid cap bias - an area, which continues to outperform the blue chips. De-pegging of the Chinese and Malaysian currencies gave a great boost to Asian markets as it relieved potential trade friction with the US. Our Asian allocation posted its best results for the year so far with one of our managers recording a gain of over 8%. Note: Revised mandate awaiting South Africa FSB approval.   NIIS International Equity comment - Mar 05 Tuesday, 24 May 2005 Fund Manager Comment At the start of March NIIS Equity's mandate changed to target absolute returns over the medium to long-term in excess of US Consumer Price Index (CPI). The time horizon of the new mandate allows us to invest in managers who make investments over longer timeframes rather than attempting to speculate on share price movements fuelled by investor sentiment. We seek to use more value-driven managers and managers with a bent towards asset-backed shares. We may tilt the portfolio to opportunities where we have high conviction. Overall this should help dampen volatility. Inevitably, over shorter periods, our long-only managers may lose money due to adverse market environments or lag behind strong market moves. However, it is our goal to mitigate losses and to steadily compound positive returns. Unfortunately, the market environment during March was more than testing and the Fund fell 1.88%. While this is not the auspicious start we had hoped, it illustrates aptly what we caution above, the unsuitable nature of this product to excessive focus on the performance of a single month. A loss of 2.16% over the same period by the MSCI World Index offers some market context. Markets focused on the US macro data and the continued bounce in oil and other commodity prices, which pointed towards incipient rising inflation and slowing economic growth. Investors worried about the Fed abandoning its "measured" increases. Heavy selling in the bond market saw the 10-year US Treasuries yield continue to back up, peaking just short of 4.7%. Volatility picked up markedly due to the accompanying risk aversion as the VIX Index moved higher and credit spreads widened. Our equity managers in every region with the notable exception of the US, where some of our managers are overweight in healthcare and technology, on the whole have started 2005 strongly. Unfortunately, many of our managers were caught by the strength and amplitude of the moves caused by the change in risk aversion. While some of our managers who were overweight energy benefited, this was not enough to offset an uncomfortable month for most others.   NIIS International Equity comment - Jan 05 Tuesday, 22 February 2005 Fund Manager Comment The NIIS Equity fund lost 2.58% in January whilst the MSCI World fell 2.31% over the same period. January proved to be a very difficult month for stock markets as most of the major world indexes posted negative returns with the loss being particularly heavy in the first trading week of the month. Wall Street began 2005 on a cautious note after the minutes of December's Federal Open Market Committee meeting revealed that the US Central Bank was concerned about rising inflationary pressures. The tone was such that investors were led to worry over a potential pick up in the pace and size of future interest rate increases, which would potentially slow economic growth and hinder corporate profitability. On a relative basis, some of our US managers struggled this month, as those with overweight exposures in healthcare and technology were worse off. Over the month the NASDAQ Composite fell 5.20%, dragged down in particular by semiconductor stocks which struggled on the back of profit concerns. Our newly added absolute manager however helped us this month in the current market environment. Mixed economic data released throughout January saw a volatile month for the Japanese market. Despite this both our managers recorded impressive gains with one returning over 8% for the month. Furthermore their bottom-up fundamentals and small cap biases helped them considerably outperform their respective benchmarks. Asian stock markets started 2005 on a positive note largely due to continued strength in the export sector. Both of our funds performed in line with their benchmarks this month. European markets retreated on the back of a cautious Wall Street and poor news in the tech sector. The UK market however was more resilient and continues to remain attractively valued. Our component in this area remains stable.   NIIS International Equity comment - Dec 04 Tuesday, 22 February 2005 Fund Manager Comment The NIIS Equity fund advanced 3.32% in December whilst the MSCI World returned 3.73% over the same period. The fund ended the year up 11.85% versus an annual return of 12.84% by the index. The Global Equity market continued its year-end rally in December as most of the major world indexes posted healthy gains. Wall Street rebounded from a tough start to the month helped by encouraging economic data, increased merger activity and soothing comments from the Federal Reserve. As widely expected the Fed raised interest rates by a further 0.25% to 2.25%, though this barely moved the market as the Fed reassured investors over the outlook for the economy and stated that future rate rises would be modest. Most of our US funds outperformed their respective benchmarks this month, with our largest holding outperforming by almost 3%. This particular fund has now beaten the benchmark for 14 consecutive years. Tech stocks were once again a positive contributor and Small Cap stocks triumphed over Large Caps. Despite rather dull domestic economic statistics the Japanese market rallied on the back of a very firm Wall Street. Both of our funds slightly underperformed the index in December, however, both funds have ended the year considerably higher than their benchmarks. Asian stock markets were relatively unaffected by the tsunami disaster, with many traders on holiday and volumes comparatively thin. The effects are largely country specific, with the main losses seen in hotel and travel-related stocks. The exposure of our funds to these areas is limited. The performance of our European and UK funds were mixed, with our UK funds in particular underperforming largely due to an underweigh in retail - an area that performed exceptionally well in December.   NIIS International Equity comment - Sep 04 Tuesday, 9 November 2004 Fund Manager Comment September was an eventful month as mixed economic data, fluctuations in oil prices and a strong US employment report all contributed to numerous oscillations in the global equity market. The NIIS Equity fund ended the month up 1.28% whilst the MSCI World returned 1.77% over the same period. September got off to a buoyant start underpinned by lower oil prices, upbeat comments on the economy from Alan Greenspan and a strong employment report. Technology stocks led the way, bouncing back from recent falls as National Semiconductor lifted some of the gloom surrounding the microchip sector by announcing better than expected earnings. However halfway through September, oil prices spiked back up to record levels spurred on by political unrest in Nigeria causing the S&P 500 and the Dow to tumble to new lows for the month. Despite this, we are very pleased to report that all of our US holdings except one outperformed their respective benchmarks this month. On a relative basis our European and UK managers performed exceptionally well. Oil stocks were better supported as the oil price moved back towards record levels, helping markets like UK, with its large oil weighting to outperform. Underperformance by our Japanese managers hurt us this month with one holding in particular lagging the market by 6%. Exposure to small caps, negative technical factors in Japan i.e. margin calls and high raw material prices contributed to the downperformance of our Japanese managers this month. We were slightly disappointed by our Asian component as both of our funds underperformed on a relative basis. Our managers however maintain their view that Asian markets will outperform the major developed markets due to their better economic fundamentals.   NIBIIS International Equity comment - Mar 04 Wednesday, 26 May 2004 Fund Manager Comment The NIIS Equity Fund decreased 1.48% in March, whilst the MCSI World index dropped 0.66% over the same period. On a year to date basis the fund is marginally ahead of the index. In March, with the exception of Japan, global stock markets paused for thought and gave back some performance after eleven months of robust returns. The cause was increased investor concerns over February US job numbers published at the start of the month, US election uncertainty and heightened geopolitical risk in the aftermath of the terrorist bombing in Madrid and escalating violence in Iraq. The slide in indices reawakens doubts over the sustainability of the economic recovery and with the MSCI World USD Index up almost 40% from the lows of March 2003, analysts believe a sobering correction may still be a possibility. Our equity holdings were down in line with the overall market. Europe and UK were the worst performing regions in light of the Madrid bombing. This was exacerbated with some of our managers at the time having moved towards more pro-cyclical positions. In stark contrast to the rest of the world Japan endured a phenomenal month with the MSCI Japan up 13.4%. This upsurge was largely due to strong exports, rising capital investments and signs of increased consumer spending. We are pleased to report that our Japanese equity exposure onsiderably outperformed the index and returned 18.2% for the month. In addition, our Pan-Asian holding, with a large weighting in Japan, experienced its highest return in five years. We are currently in the process of repositioning the US, UK and European components of the portfolio, redeeming those that have been laggards in the portfolio.   NIBIIS International Equity comment - Dec 03 Tuesday, 10 February 2004 Fund Manager Comment The NIIS Equity Fund returned 4.38% in December whilst the MCSI World index returned 6.27% over the same period. The fund produced its tenth consecutive positive gain finishing 2003 with an increase of 29.89%. Global equity markets ended the year on a strong note as the world's major indices rallied to record significantly high returns. This was facilitated by the breadth of positive economic data released during the month helping stave off worries about the sustainability of the upturn and the sudden capture of Saddam Hussein, which dramatically boosted investor confidence. The US dollar continued to depreciate strongly this month falling sharply against the Euro leading to potential concerns about a weakening demand for US assets. Across the board, as markets have shifted towards smaller companies and financially leveraged names, it seems the consensus amongst most of our managers are that valuation opportunities are likely to be in the stable blue chip areas going forward.   NIBIIS International Equity comment - Sep 03 Monday, 27 October 2003 Fund Manager Comment The NIBIIS Equity Fund returned 1.46% in September whilst the MCSI World index returned 0.60% over the same period. On the whole our equity holdings performed well again this month, but were let down by the performance of the US equity market. The MSCI Pacific, France CAC 40 and the FTSE 100 all recorded positive gains for the month. On September 22, reports that Japan would not sell Yen led to a sharp drop in the US market with S&P down 1.3% that day. The logic for the decline was that that the US dollar would decline and interest rates rise, as Japan would no longer buy US bonds with their excess dollars. Despite a combination of tax cuts and low interest rates investors still remain cautious, this is largely due to the weak job market and political uncertainty that is currently gripping the US. Despite a bad September for the US, our equity managers are still optimistic of a synchronised global recovery but expect it to be a much slower grinding affair than first thought. The lack of pent-up consumer demand in the US means that the eventual recovery will likely lack intensity and broadness. Our managers continue to see opportunities across the markets from a stockpicking standpoint. Market share leadership, size and dividend yield are attributes that managers find attractive within an expected mid to high single digit annual nominal returns environment. Over the month the Japanese market rose by 5.9%, but technical indicators showed it was getting overbought. Some of our Asian managers were able to cut their net positions when they saw the Yen strengthening thereby locking in their gains when the market fell back. An increased exposure to Pharmaceuticals and Utilities helped Asian Managers this month. Our new investments into Asian funds have indeed proved successful, as once again our Asian equities have produced the best returns in the portfolio. The UK equity market accelerated this month with the FTSE 100 index gaining 3.5%. Housing and consumer spending are strong in the UK, as households have taken advantage of low interest rates. Europe's other major economies have tried to bolster growth by implementing tax cuts, new spending measures and keeping interest rates low. These factors have indeed contributed to the positive gains recorded by all or our UK and Europe equity holdings.   NIBIIS International Equity comment - June 2003 Wednesday, 13 August 2003 Fund Manager Comment The NIBIIS Equity Fund returned 2.78% in June outperforming the MCSI World index by over 1% for the same period. Global equity markets rallied in June, led by tech stocks and the release of pent-up demand following the post Iraq war lows in March. This followed expectations of a recovery in the US economy, supported by a further interest rate cut. However economic data remained fairly patchy, with increased consumer confidence setback by continued sluggishness in the manufacturing sector. The recent rallies in US equities should not at all be considered as a new bull market, instead analysts think it is rather a complex topping out process that began in 1999. This month most of our US fund managers have outperformed their respective benchmarks. The performance of our UK holdings fared well over the month with one specific position beating the benchmark by 2.8%. The rise in the stock market in the UK should reduce pension fund fears, which should increase the attraction of equities, especially given favourable valuations. Two of our three European holdings outperformed the MSCI Europe index for the month and we remain confident that this good performance will continue over the longer term due to an improving global economy, lower oil prices and lower policy rates which will stimulate investors to take on more risk. Asian markets drew strength from the US rebound as well as the receding threat of SARS. Both Hong Kong and China were removed from the World health Organisation's travel advisory list, thereby triggering a liquidity-driven rally in these markets. The repositioning of our Asian bloc has proved successful, as all of our new holdings have considerably outperformed their respective benchmarks.   NIBIIS International Equity comment - March 2003 Monday, 5 May 2003 Fund Manager Comment The NIBIIS Equity Fund gained 0.64% in March, outperforming the MCSI World (-0.33%). March has been a month of tremendous volatility for World markets. US equities surged as optimism for a short war propelled the the NASDAQ up and the Dow Jones had its strongest week since 1998. Unfortunately, in the last week of the month markets came back as hopes of a quick resolution to the Iraq war faded. The S&P 500 (+0.96%) did however end the month in positive territory. Our underlying US funds had a good month with all but one of our funds up for the month. European bourses also had a difficult month as they sank to historic lows after news of a divided United Nations in the build up to inevitable war with Iraq. A couple of days later these bourses saw a reversal of fortune as investors shrugged off the looming war and snapped up some European bargains. Unfortunately this was not sustainable as news of the stronger than expected Iraqi resistance to the US led invasion became evident. The MSCI Europe ended the month down 1.49%. Our underlying funds in this region were mixed, but generally ahead of their benchmarks. Pacific market followed global markets lower with war concerns and the outbreak of the SARS virus. Our underlying funds in this area had a difficult month in March.   NIBIIS International Equity comment - December 02 Wednesday, 5 February 2003 Fund Manager Comment The NIBIIS Equity Fund lost 5.68% for December vs. the MCSI World, which lost 4.86%. This underperformance was due to the slight value bias in the fund. Some economists believe that after the easing of monetary policy by Central banks and growth in liquidity, equity markets may be in for a better year. There is still uncertainty about the ability of the U.S economy to sustain a recovery due to concerns over the possible decrease in the U.S. consumer spending, along with the uncertainty of what may happen in Iraq. On the consumer front, concerns are probably exaggerated, as the average consumer does not have a large stake in the equity market, but rather owns property, which is an appreciating asset and has a job enjoying rising real incomes. On the geopolitical front, even if there is swift resolve to current tensions with Iraq, the war against terrorism will last for years, with ongoing fears about more attacks against the U.S. The current geopolitical situation is not necessarily conducive to good financial market conditions, but there is no reason to pursue highly conservative investments, as the economy might not slide back into recession, corporate profits could increase and monetary and fiscal policy may remain stimulative. James Abate, the fund manager of one of our underlying funds, the GAM Star American Focus fund says that "There is potential for stocks to move higher in 2003. This is based upon the fundamental trends of economic growth, interest rates and a further receding of the extreme risk aversion reached this past year." We are happy to report that our core holding in the NIBIIS Equity Fund, The Legg Mason Value Trust managed by Bill Miller, has outperformed the S&P 500 index for the calendar year 2002 - making it the only fund to have beaten the S&P 500 for each of the last 12 calendar years.   NIBIIS International Equity comment - November 02 Monday, 23 December 2002 Fund Manager Comment The NIBIIS Equity Fund (+4.89%) slightly underperformed the MCSI World (+5.25%) for November. Signs that US economic conditions may be improving played a part in rallying global equity markets during November. The US stock market rally, which began in October, continued in November with the S&P 500 index rising 5.7%, the Nasdaq Composite up 11.2% and the Russell 2000 index up 8.8% for the month. As in October, value stocks performed poorly, as investors appear to be abandoning safety for the relative excitement found in technology and cyclical stocks. The Dow Jones Industrial Average recorded its biggest two-month gain since 1987 jumping 5.9% in November after rising 11% in October. UK markets have also rallied strongly with the benchmark FTSE 100 index posting its largest two-month gain in 4 years. Japanese investors seized on better domestic and US economic data, and the strong recent performance from Nasdaq, to lift TOPIX. The rally allowed the broad Japanese stock index to finish its first positive month of returns since May. With no firm economic reform proposals on the table from the government, investors refocused on the beneficial effect of the better US data on Japanese economic growth next year. Even though there have been concerns that the US consumer sector is in an unsteady financial position and that a major retrenchment lies ahead, some economists believe that these fears are overstated, just as they have been over the past two years. The household sectors debt-to-income ratio is at a new peak, but there is no indication that it has reached a critical level. Most debt is in mortgages, and these are well collateralized. A bursting housing bubble, would be devastating for the consumer sector, but this is not expected as housing is still affordable and there is little prospect of a rise in interest rates in the near future. Nevertheless, the growth in consumer spending is likely to slow in 2003, because the mortgage-refinancing spree has run its course.   NIBIIS International Equity comment - October 2002 Tuesday, 26 November 2002 Fund Manager Comment The NIBIIS Equity Fund (+2.94%) underperformed the MCSI World (+7.37%), for October, which the fund managers were disappointed with. Most of the underperformance came from their underlying UK funds. Year-to-date figures are however ahead of the benchmark. October saw a sharp bounce in equity prices, which was typical of a bear market rally. Stocks were overbought and Treasuries were oversold in October reversing the long-term trend. After continuous negative news and the worst six month performance in 28 years, the S&P 500 (+8.8%) staged its strongest percentage gain in 13 years and October's gain was the 38th best month for the index since 1928. Our core holding, the Legg Mason US Value Fund significantly outperformed the market over the month, gaining 11.30%. Some of their managers believe that the fund managers have seen the bottom of the market and are therefore extremely bullish. However, economic data suggests that it might be too soon to conclude that the recent reversal in stocks and bonds will continue. Consumer spending in the US is showing signs of losing momentum in response to slower income growth and fewer job offerings. This could cause doubt in the markets going forward and this is a situation that the fund managers are closely monitoring. Our underlying European and UK funds had a difficult month in October as most of their fund managers in this region were not expecting the sharp reversal in investment sentiment as they tend to look for valuations justified by sound fundamentals rather than sentiment driven markets. The fund managers are comfortable with their fund selection, as year to date most of their underlying mangers are ahead of their respective benchmarks. The views on Japan are mixed at the moment. On the one hand companies seem to be progressing well with restructuring and the early indications are that the results season is producing many more positive than negative surprises. On the other hand Japan's anti-deflation package, along with the dramatic drop in foreign purchases of Japanese shares is disappointing. The fund managers are currently happy with the performances of their underlying funds, but nevertheless one of their analysts will be meeting the managers during a fund-monitoring trip in the Far East in November.   NIBIIS Equity comment - September 2002 Wednesday, 30 October 2002 Fund Manager Comment We are very pleased to report that in September the NIBIIS Equity Fund (-8.42%) outperformed the MCSI World (-11.01%), for the 3 rd month consecutively, giving a quarterly outperformance of nearly 3%. The U.S. equity markets were dismal in September. The S&P 500 was down 11%. The Russell 2000 lost 7% while the Nasdaq lost 11%. Worst of all was the Dow, which ended the month down 12% to reach its four-year low. Investor confidence deteriorated further, firstly, because of economic data being generally poor, secondly because quarterly profit warnings and finally, due to the increasing likelihood of a war between the US and Iraq. We were however pleased with the performance of our underlying funds, which mostly outperformed their respective benchmarks, with MFS US Emerging outperforming by over 4%. The prospect of intensifying deflation and the lack of government intervention prompted the Bank of Japan (BoJ) to announce that it would buy equities directly off banks' balance sheets, which was more a cry for action than anything else. The best that can be said on the domestic economy is that currently it does not appear to be getting any worse. However, on the brighter side, Japan's export-led industries have continued to do well and this has been behind the relative recovery in recent months. Unfortunately our underlying funds marginally underperformed. September was also one of the worst months on record in the history of European equity markets with equity indices like the German DAX dropping as much as 24% and the MSCI European Equity Index ends the month down 13%. Our underlying managers have been looking, perhaps hopefully, for a final sell-off in markets and with the collapse in equities which has coincided with apparent forced selling in the last week of September, now may be the time. Our underlying funds were mostly in line with another good month from Threadneedle European, which outperformed by close to 4%. On the UK equity side we must report that we have replaced ABN Amro UK, due to the resignation of one of their key managers. This was replaced with GAM UK Diversified who manger uses a top-down approach to identify his total investible universe. The underlying process revolves around industries with depressed valuations, showing long-standing underperformance as a catalyst for change. This will be based on both fundamental and technical analysis, which should lead to out of favour companies that have shown a commitment to change or that they are restructuring. We were pleased with our UK block as both GAM UK Diversified and Liontrust outperformed the FTSE 100 (-10.15%) by 3% and 4% respectively.   NIBIIS quarterly review - June 2002 Monday, 14 October 2002 General Market Analysis The NIBIIS quarterly review is available on the NIB website.   NIBIIS International Equity comment - August 2002 Wednesday, 25 September 2002 Fund Manager Comment The NIBIIS Equity Fund was +1.22% outperforming the MCSI World +0.17% for August. The US equity market had its first positive month since March, at least as measured by the S&P 500, registering a gain of 0.65%. August saw plenty of intra-month volatility with the Dow Jones reaching levels it has not seen since September 2001 with the Nasdaq gaining for the first time since 28 June 2001. The S&P steadily climbed, but is still below its levels at the start of the quarter. The Federal Reserve Bank did not cut interest rates in August, but some economists feel this is eminent, with the weakness of the economy. Corporate news provided the markets clearer direction as the SEC's deadline for managements to take responsibility for reporting accuracy and a number of high profile corporate executives were arrested passed without too much noise. Of our underlying funds Legg Mason, which is our core holding (13%), was up 6.34% - this is due to a rebound in some of their major holdings that were affected by the recent sell-offs in the market. Europe has been the main underperformer for the year and even though stock markets were up in mid August, the indices ended up flat for the month after the follow on of weak consumer data in the US. Weak economic data in August confirmed that the Euro area recovery has stalled. A stronger Euro and the worsening global outlook hurt export orders, while domestic demand was undermined by a weak consumer sector and subdued capital spending. Our underlying managers do however see an upside in European stock markets going forward and believe that European equities are cheap versus cash and bonds and remain undervalued on a relative basis. Most of our underlying funds outperformed their benchmarks, albeit with slightly negative performances. Economic recovery in Japan remains uncertain. Although trade surpluses widened during August, imports continue to decline because of weak domestic demand. In addition the economic weakness in Europe and the US and the strengthening yen continue to threaten Japan's exports, which is considered crucial to the county's recovery. Government spending is retreating, the business sector is under pressure from Asia and the economy is in a perpetual state of deflation. Still equities tend to rally whenever global growth prospects improve and the Japanese stock market held up, despite poor technical indicators.   NIBIIS International Equity comment - July 2002 Wednesday, 21 August 2002 Fund Manager Comment The NIBIIS Equity Fund was (-7.33%) outperforming the MCSI World (-8.44%) for June. US economic data released over July generally came in below expectations and this contributed to the negative sentiment in equity markets. The economy is still recovering but the pace is slower than consensus had been expecting, hence the disappointment with which the data has been received. The savings rate for US individuals is currently running at around 4% - it has increased slightly in recent months but not significantly. Although US consumers have had to get used to seeing the value of their stock-based portfolios diminish, the psychological effect of this has been partly mitigated by strong property prices; and the most recent four-week moving average of total new jobless benefits claims also showed a rise although remains below the important 400,000 level. Equity and credit markets took a beating through most of July with trillions of dollars of wealth from retirement accounts being lost, before a partial rebound towards the end of the month. The recent strength of the Euro should ease the inflationary concerns of the European Central Bank, allowing rates to be kept lower for longer, and providing further support to the economy. The financial sector has had an exceptionally difficult time. Particular issues here are relating to solvency for life assurance writers and the insurance sector generally. Obviously the spate of ratings downgrades casts question marks over the credit cycle, and places like France Telecom, Deutsche Telecom, Vivendi, Alcatel, all of whom have had very high level ratings downgrades in the past month or so. That has hit hard on the banks and we're just starting to see some downgrades coming through indeed from this sector. That weakness in the financials has spilled over into July. In July we saw another poor month for the Japanese market with the only positive aspect being that it fell less than some other markets in the globe. Over the month the Nikkei fell 7.0%. Although it's only two months since the market peaked at 12,000 it feels much longer. Then the market was not only excited by signs of the US and Japanese economic recoveries but also by the improvement in corporate profits in Japan. With US and European economic recoveries now in doubt, it looks as though Japan may again be dragged back into recession as the export led recovery comes to a grinding halt. This depressing outcome has been further complicated by the drop in the Nikkei below 10,000 which has again put the solvency of the Japanese banking system into question.   NIBIIS International Equity comment - June 2002 Wednesday, 24 July 2002 Fund Manager Comment The NIBIIS Equity Fund was down 6.82% slightly underperforming the MCSI World (-6.08%) for June. During June, the United States equity markets were impacted by several factors. These were fraudulent or questionable accounting by companies such as WorldCom, Tyco International and Xerox, concerns about the prospects for a recovery in corporate profits, terrorism fears and the existing conflict in the Middle East and between India and Pakistan. Equity markets globally showed erratic volatility with some very large one day moves (some of the largest historically). Our best performing US fund was JP Morgan Fleming Micro Cap Fund (-5.34%) vs the Russell 2000 (-4.96%). The worst performing fund was Legg Mason (-12.30%) vs the S&P 500 (-7.12%), Most of this underperformance was concentrated in the telecoms and utility sectors which suffered from negative headline exposure and dramatic sell-off as investors showed strong preference for the more mature and "old economy" sectors. However Legg Mason investment style is long term in nature and based on fundamental valuation. If most of the concern in the market is relatively short-term, we expect Legg Mason to make meaningful positive contribution to our portfolios in a longer timeframe. The fund managers have sold out of Fidelity fairly shortly after investing with them due to the sudden resignation of their fund manager. The fund was replaced by GAM Star American Focus led by James Abate. James joined GAM in January 2001 and was the Portfolio Manager of the very successful Credit Suisse Transatlantic fund in which we had previous exposure. James adopts a pragmatic approach to investment that is ideal for the current environment in which overall performance will depend much more than in the past on disciplined valuation parameters and proven stock selection skills. The underperformance in our US bloc was compensated for by the outperformance of our underlying European and Asian funds with most fund managers outperforming their corresponding benchmarks over the month, with Threadneedle European small caps outperforming its benchmark by 2.26% and Comgest Asia outperforming by 3.98%.   NIBIIS International Equity comment - May 2002 Friday, 21 June 2002 Fund Manager Comment The NIBIIS Equity Fund gained 0.13% for May, outperforming the MSCI World (-0.04%). Strong figures from first quarter gross domestic product (GDP) reports indicated an improving US economy, but due to recent weakening unemployment, consumer confidence and retail sales news the US equity and bond markets are producing conflicting signals. This lack of conviction on economic recovery coupled with concerns about the weaker U.S. dollar, corporate accounting practices, interest rates and inflation seems to have undermined the US equity market with the Dow Jones Industrial Average struggling to stay above the psychologically important 10,000 level. The S&P 500 Index was down 0.73% during May and the Nasdaq Composite was down 4.29%. Meanwhile, the Russell 2000 Index under-performed the larger cap indexes for the first time in months, declining 4.45%. Our top-performing Fund was Credit Suisse Transatlantic Fund, which was up 1.99%, and our worst performing was JPMF America Micro Cap Fund, which was down 2.93%. Economists keep reassuring us that economic recovery is on the way but Eurozone economic activity remains lacklustre. Most major indices are at six-month lows even though forward-looking indicators continue to move upwards, with consumer and business confidence having respectively risen to nine and ten month highs. European indices owe a large proportion of their fall to heavy representation in technology/telecoms and oil stocks and with these excluded, the indices would have been stronger. Our fund managers feel that shares in small companies are more attractive at the moment, which is reflected in the returns of the Threadneedle European small cap fund (+4.24%) for May. All of our underlying managers, outperformed the MSCI Europe (-0.31%). UK equity markets have been fairly static recently as consumers keep retailers afloat, whilst manufacturers struggle amidst the global economic downturn. The Bank of England still seems to be concerned about the prospects for economic growth and has kept interest rate rises firmly on hold even though house prices are rising rapidly. The Japanese economy is improving and this has translated into gains for the Japanese stockmarket. It still looks like this recovery is largely being driven by higher exports, which have risen by 9.1% since December as a result of US recovery rather than any fundamental structural improvement within Japan. Economists feel that stockmarkets will continue strengthening as inventory cuts become less severe and as consumer investment spending increases. Our top performing funds, JF Japan and Martin Currie Japan both returned 5.7%, slightly underperforming the Nikkei 225, which gained 5.91%. Stockmarkets in the Pacific Rim have continued to climb on the back of hopes of a global economic recovery and the results were good for our portfolio with Comgest Asia gaining 4.59% for May. This is due to companies currently being held by Comgest Asia registering extremely satisfactory results, whilst the stocks that Comgest Asia acquired last year now seem to be nearing their intrinsic value, following a strong increase over the last few months.   NIBIIS International Equity comment April 2002 Tuesday, 21 May 2002 Fund Manager Comment The NIBIIS Equity Fund returned -0.54% for April, outperforming the MSCI World (-3.52%) by nearly 3%. April was a very challenging month for holders of U.S. equities. Stock markets declined sharply on the back of negative news flowing from both economic and corporate sectors with technology continuing to lead declines. Labour numbers also show that unemployment now stands at 6%, its highest level since August 1994. During April, the NASDAQ Composite Index and S&P 500 Index lost 8.51% and 6.06%, respectively and at the same time saw a sharp weakening of the USD. The fund manager has been working on re-positioning the US bloc and are very happy with the outcome. Not one of the underlying US funds underperformed their respective benchmarks and the most recent investment into Fidelity American has proved to be beneficial, as it was the top performing fund in this bloc, outperforming the S&P 500 index by nearly 7.5 %. The fund managers believed that the bull-run in Asia could continue for some time. At a domestic level, many restructuring changes are underway, which should make many individual companies more profitable, in turn driving investor sentiment towards investing in these markets. This region outperformed the US, UK and continental Europe for April as confidence returned to the markets. The Japanese stock market had mixed economic reports during April, but provided enough positives to take the market higher. Our top performing fund within the Asian block was the JP Morgan Fleming Japanese Fund (+5.54%), which slightly underperforming its benchmark the MSCI Japan (+5.82%). JP Morgan Fleming Asia was disappointing losing 0.71%. Even though the performance for April was slightly disappointing the fund manager is however content with this bloc as it has given the fund good consistent performance over the past few months. Recent indicators pointed to signs of stabilisation of economic growth across the European and UK regions. European stock markets generally followed the US lead downward with technology in particular feeling the effects of declines across the Atlantic. The fund has had good performance from this bloc over the past few months, with great outperformance from Threadneedle Smaller Co.’s this month (+4.41%) bringing their YTD to an impressive +12.50%.

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