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Nedgroup Investments Global Cautious Fund Nedgroup Investments (IOM) Limited Nedgroup Investments Global Cautious Fund News Nedgroup Inv Global Cautious comment - Mar 14 Monday, 26 May 2014 Fund Manager Comment Equity markets came close to finishing March where they started the year, regaining much of the first quarterˇ¦s earlier losses. At the regional equity level, emerging markets bounced back and outperformed developed markets, amid hopes of stimulus measures to support the Chinese economy. Meanwhile, global bonds slightly underperformed the broad equity indices. Hopes that Beijing would take action to support growth were stirred by a preliminary survey of Chinese manufacturing activity for March that pointed to a third successive month of contraction. Towards month end, Chinaˇ¦s premier, Li Keqiang, raised hopes further by saying the government had the necessary policy tools to address the economic slowdown. In contrast; in the US, economic data continued to reverse some of the negative sentiment caused by the weather-depressed January figures. The Federal Reserveˇ¦s new chair, Janet Yellen, managed to generate some confusion about when the first rate rise might occur by suggesting it may be six months after the asset purchase scheme ends, much sooner than markets had anticipated. Meanwhile, in Europe, the low level of Eurozone inflation is a growing worry. In March, prices were estimated to have risen by just 0.5% compared to a year ago, below consensus estimates and the lowest in four years. We maintained our bias towards the US as, despite recent growth concerns, we are positive on the regional economy in the short-to-intermediate term. Meanwhile, we were short emerging markets and the Pacific region. At an equity sector level, our positions in healthcare ˇV a play on low inflation ˇV detracted from performance, having contributed positively in January and February. Our stock selection overall detracted this month. In fixed income, we maintained a low level of duration. We were short US debt versus a long in Europe as a play on the different interest rate expectations in the two regions. Our modest exposure to European peripheral debt contributed positively to performance. We also maintained some duration in Australia, and continued to be short duration in emerging markets and Japan. We retain a positive outlook on risk assets given improving global growth with muted inflation, accommodative monetary policy, and still-supportive valuations. However, our conviction in risk assets has lowered amid expectations for at least some of these drivers to diminish over the course of the year and for volatility to increase. Our main concerns remain focused on the cyclical challenges in emerging economies despite the market bounce in March, and the resilience of the global economy in the face of rising rates. These factors have impacted markets earlier than we expected, but do not look big enough to change our core view. Fundamentals remain supportive of equities. Earnings growth is bottoming across regions and should begin to turn up soon. Valuations remain attractive relative to bonds, and no worse than neutral versus their own history on other metrics. The net effective equity exposure (delta) of the portfolio at 31 March is 45% and is a function of: -Physical equity exposure -Plus option/future strategies (could increase or decrease net exposure) -Plus convertibles exposure (could increase net exposure. This is not the same as actual convertible holdings)   Nedgroup Inv Global Cautious comment - Sep 12 Thursday, 15 November 2012 Fund Manager Comment There were some significant market events throughout the month including open-ended quantitative easing from the Federal Reserve, unlimited bond purchases by the European Central Bank (ECB) for a country requesting aid and a surprise increase in stimulus measures by the Bank of Japan. While equity markets made modest progress, the political and macro backdrop still looked bleak, with violent anti-austerity demonstrations in Spain and Greece, the announcement of an independence vote in the Catalonian region and the economy taking centre stage in the looming US Presidential election. With weak global PMIs and global growth slowing, the effectiveness of unconventional policy is firmly in the spotlight to see if monetary policy can be translated into real economic growth and employment. Against this backdrop, the Fund maintained a number of core allocations. Our physical stock has a conservative diversified profile and a low beta to the broader market. We maintained our Australian real-yield position and within convertible bonds, our allocation ranged between 8% and 14% as we took profit on some of our names towards the end of the month. All of these allocations added to performance in September. However, our macro overlay was a negative contributor with our shorts in US small cap and German Dax futures detracting value in a rising equity market. We were too cautiously positioned at the start of the month as the market began pricing in extraordinary action from central banks and we added to our equity exposure as our Global Strategy Team (GST) added to risk. We reduced our US small cap position and added some Eurostoxx futures, remaining short the German Dax as a play on the sensitivity of German exporters to a Chinese slowdown, which we believe will pose a greater risk than the market anticipates. While our headline delta remains towards the top of our 30% limit, our overall equity sensitivity is lower than the number would suggest given the low beta of the stock profile. We remain constructive in core fixed income with positive contributions from our long position in the Australian 10-year part of the yield curve and our US Treasury cash bonds where the roll and carry remains attractive. However, our decision to be long at the 30-year part of the US curve detracted value over the month as the Federal Open Market Committee (FOMC) placed the employment part of its dual mandate above inflation concerns, both with the open ended nature of quantitative easing and its forward guidance, where rates are expected to remain low even when the economy has begun to recover. We closed out this position and gradually reduced duration from a high of around 6.0 years towards 3.8 years as fixed income continued to perform well. Looking ahead, we are becoming more positive on risk assets in the medium term, given the concerted monetary easing we have seen from several central banks around the world, which has allowed markets to stabilise. We acknowledge that global growth remains muted and will likely remain so for some time to come. However, with several potentially catastrophic tail risk events now off the table, market sentiment has picked up and our GST remains constructive on risk assets. Given the news flow, which has been on balance more positive, we are happy to remain with our current allocations, notably a conservative stock allocation with smaller future hedges and some core protection in the form of fixed income. While the Fund in terms of equity allocation remains tilted towards the US, a key consideration is whether we should add risk in Europe at the expense of our North American exposure where valuations are more expensive and the actions of the ECB have seemingly taken a euro breakup off the table in the medium term.   Nedgroup Inv Global Cautious comment - Jun 12 Tuesday, 28 August 2012 Fund Manager Comment Over the month of June, the MSCI World Index (Total Return Net) hedged to USD was up 4.1% with much of this positive performance coming on the last day of the month. However, bonds performed poorly with the JPMorgan GBI Global Index hedged to USD down 0.5%. During the month, Greece elected a pro-bail out government by a narrow margin, the Federal Open Market Committee voted to extend "operation twist" and, on the final day, it was announced that a single supervisory mechanism will be established to oversee Eurozone financial institutions and capital funding from the European Stability Mechanism. In an attempt to break the negative feedback loop between indebted banks and sovereigns, the capital funding is available directly to banks rather than being channelled via the sovereign. European headlines continued to dominate global markets, while the EU Summit produced an initial relief rally that should be regarded as a step forward. Crucially, it remains to be seen if the detail is sufficient for a sustained appreciation in risk assets or if the Eurozone has simply bought some more time. Against this backdrop the Fund maintained an average equity delta of 12% with our geographical exposure biased towards Japan and the US. Our stock selection has outperformed the MSCI World Index (Total Return Net). We have continued to own some downside protection in the form of put options on the Eurostoxx and the S&P which, in a rising market with falling volatility, detracted value. However, despite the sharp positive performance at the end of the month, we still maintain the view that carrying such protection is sensible given the cautious nature of the Fund. Within fixed income, we have remained long US treasuries, primarily in the 10-year part of the curve. We added duration in Australia and sold the 5-year part of the European curve, the latter trade in particular performing well as European fixed income markets sold off. The duration profile has been fairly stable with around two years of nominal duration and around two years of inflation-linked bonds, although we took some profit on our US long-dated position. Fixed income, in aggregate, detracted value. However, we should note that there has not been an aggressive sell off in US bonds and the moves in European yields, from all-time lows, have been exaggerated by pension changes. Our allocation to convertible bonds has remained relatively stable at around 11% and we have used this opportunity to take profit in some names that have performed well as markets have moved up. Moving forward, we remain concerned about the lack of detail in the latest EU communication, and data in the US looks to be losing momentum. However, we are conscious that the news flow needs to remain negative to justify current pricing. We anticipate keeping mid-levels of delta to capture the outperformance of our new stock selection process with some protection in the form of put options. We intend to remain constructive on core fixed income markets where carry is attractive, central banks remain supportive and there are diversification benefits for the Fund.   Nedgroup Inv Global Cautious comment - Mar 12 Wednesday, 16 May 2012 Fund Manager Comment Following the strong rally in risk assets since Q4 of 2011, March was a mixed month for global equity markets. While at the global level equities did advance, this masks some significant differences between regional equity market returns. Japan was the best performing region as it benefited from a positive revision to fourth quarter 2011 GDP growth and the Japanese Central Bank reiterated its support for anti-deflationary measures. Further signs of recovery in the US economy also drove North American markets higher. US employment data was particularly impressive, completing the best six months for payroll growth since 2006. Also, activity in the US services and manufacturing sectors accelerated in February according to surveys released in March. This contrasts with the poor performance of European and Chinese equity markets, with the former suffering from deteriorating data points and further worries of Spain and Italy’s involvement in the debt crisis, while China reported its largest trade deficit in over two decades and HSBC’s purchasing manager’s survey pointed towards a contraction in manufacturing activity. There were considerable moves in fixed income markets, with the 10-year Treasury yield rising by nearly 40 bps mid-month to 2.4%. Stresses were also witnessed in European bond markets, with the yield on Spanish 10-year government debt rising from 5% to 5.5% . Across other asset classes, gold fell, mainly at the beginning of the month as Ben Bernanke, Chairman of the Federal Reserve, signalled that a third round of quantitative easing (known as “QE3”) should not be expected by markets at this point. This also caused the US dollar to strengthen, particularly against the Japanese yen, which fell to its weakest level versus the dollar in almost 11 months given the Bank of Japan’s continued stimulus measures. Against this backdrop, the fund’s delta averaged 15% during the month. We reduced the allocation to stocks from 31% to 21% over the month, as we became more concerned of a re-emergence of European sovereign debt issues. Our stock positions remain in defensive, large-cap names predominantly in the US and UK. However, these stocks underperformed the broader market, leading to a drag on performance despite the modest delta. We held equity hedges via shorts in S&P 500 Index futures and FTSE Index futures. Within fixed income, duration averaged around 3.5 years and was intended to be a form of protection for our long equity exposure concentrated in US bonds. However, the sharp sell-off in US Treasuries mid-month hurt our positions in US 5-year government bonds and was one of the largest negative contributors to the fund’s return for the month. However, we continue to like the 5-year part of the US Treasury curve. We maintain long positions in index-linked government bonds as a play on inflation remaining stubbornly high, favouring bonds in Australia, the UK and the US. Performance of our holdings in convertibles was relatively flat in March. We continue to hold an allocation of around 15% in convertibles, having increased this from around 3% at the beginning of the year. With a continued strong demand for credit and yield instruments, we expect to maintain this allocation over the medium term. Looking ahead, we remain cautious in the near term following the quick re-emergence of worries surrounding the European periphery and the possibility of a slowdown in China. For further gains to be sustained, the US and the global economy will have to move into a self-sustaining phase driven by internal growth dynamics rather than the continued provision of central bank liquidity. We are not convinced that this will be achieved and as such, we remain well hedged on the downside. On a geographical basis, we remain in developed markets with the bulk of our exposure in the US and UK. Our duration position hurt during March, but we remain constructive on developed market rates and view the recent sell off as a position unwind rather than a move to substantially higher rates.   Nedgroup Inv Global Cautious comment - Dec 11 Friday, 9 March 2012 Fund Manager Comment The MSCI World Index hedged to USD had a return of +0.4%, while the J.P. Morgan Government Bond Index hedged to USD had a return of +1.7% for December. It was a disappointing month for the portfolio, which was broadly flat despite a positive stance on equities and fixed income. This can largely be attributed to stock selection and curve positioning in these two asset classes. Our delta positions remained modest, averaging around 20% for the month - we also hold an additional 5% of our equity allocation in the most defensive names in the merger arbitrage universe, namely those stocks under friendly cash bids, which added positively to performance. Our stock selection was disappointing during the month with our allocation to miners and gold stocks detracting value and also some of our US large cap names underperforming in thin year-end trading. Our hedges in FTSE futures detracted value as the market rallied into the year-end and our stocks failed to keep pace. Our convertible bond allocation remained little changed and added marginally to performance - this is an asset class we are looking to add to in the first quarter of 2012, particularly in investment grade US and Asian names. Fixed income was disappointing with German Bunds reversing nearly all of November's 60 basis points sell off. We were surprised at the extent of the fixed income rally in December and while we remain committed to our long term UK and Australian inflation-linked bond positions, clearly the portfolio would have benefited from more AAA rated sovereign debt. We remain long in the US 5-year part of the curve where we see attractive roll and carry - a trade that added value over the month. As we look into 2012, many of the themes that were the drivers of market price action are likely to persist; deleveraging is a force that will remain with us for years depressing growth and future asset returns. While in Europe, the three-year refinancing facility made available by the ECB to European banks provides additional liquidity to the banking sector, but the underlying economic divergences remain as large as ever, and in the short term the possibility of a coercive Greek Default remains a very real possibility. However, it is not all bad news, as policy makers across the globe appear focused on rescuing and reflating the global economy. Liquidity provision remains ample and there are signs in the economic data that the Q4 recovery could extend into H1 2012. Clearly one of the key questions, with global equities at the upper end of the last six months range, is whether this news is already priced in - unfortunately we think it is. Bottom-up earnings expectations remain strongly positive across all developed markets, with the S&P looking for nearly 12% next year, even in Europe the market looks for +9.5%, something that looks inconsistent with our expectations of a Europe-wide recession. How do we position for such an outlook? One of the surprises this year has been how quickly investors have had to assess what is a truly safe asset, in 2011 we had taken a strategic decision to avoid peripheral debt and concentrate on the core markets of German Bunds, UK Gilts and US Treasuries with additional holdings of AAA supranational bonds. Even the safety of supranational bonds and German Bunds were questioned in Q4, coupled with market illiquidity the bonds suffered disappointing market losses. We maintain that the default risk on these bonds is virtually nil, but if they fail to provide diversification, then their role in a portfolio is lessened and we have reduced exposure. Our favoured holdings are sub 5-year US Treasuries given our view that the overnight rates are unlikely to rise on any forecast horizon, we also look to buy duration in Australia given its solid fiscal position and still positive real yields. Clearly the returns from short-dated sovereign debt will be meagre even against a backdrop of near zero policy rates. Returns in the portfolio will have to come from the pro risk part of our allocation, the challenge for all investors is how to diversify the level of volatility associated with such positions. While we remain cautious on the path of equity indices through 2012, we do see value in some sectors and regions. We look to continue to accumulate high quality dividend yielding stock, particularly those in the US and Energy sector. We have and will continue to avoid financial stocks, but the recent falls in prices have left some European-based exporters looking cheap, although entry points will be critical given the binary risk that exists in Europe. We also look to invest in the solid global brands companies that have diversified international exposure, we do not subscribe to the view that these companies can decouple from governments, and profits as a share of GDP are at near all-time highs and unlikely to rise much further, so paying the right price for stocks will be critical. We will look to increase convertibles with names located in the US and Asia where we see attractive yields.   Nedgroup Inv Global Cautious comment - Sep 11 Thursday, 22 December 2011 Fund Manager Comment September was another extremely volatile month for risk assets with the MSCI World Index returning -6.2% hedged to USD and the JPMGBI +1.2% hedged to USD. This was against a backdrop of a continued decline in European sovereign debt markets that threatened to morph into a broader rout of European banks that are still heavily exposed to periphery debt. This is perhaps best illustrated by the index of European banks that recorded a fall of 8.2% for the month, despite the sharp relief rally in the final week of September that masked an intra-month fall of 22%. The French banks, in particular, suffered with names such as BNP Paribas and Credit Agricole down over 35% by mid-September, before recovering some of the losses as the month closed. This weak environment for risk assets saw the volatility Index (VIX) remain elevated, closing the month above 42 while emerging market equities saw sharp losses underperforming developed markets for the month. The USD and JPY remained well supported, while investors continued to flock to AAA rated government debt with the US 10-year Treasury yield remaining below 2%. Operation "twist" was announced by the Federal Open Market Committee (FOMC), which will see short-dated debt on the balance sheet sold with the proceeds used to buy longer dated maturities, a move designed to reduce longer term borrowing costs. Equity markets took little comfort from the announcement with the size of the programme larger than the market expected with bank interest margins likely to be under pressure. Although longer term funding costs in debt markets may be lowered as the programme takes effect the reaction of the credit markets, where spreads have widened significantly, has yet to see that transmission mechanism compress yields. A policy response from Europe is urgently required and while talk of a leveraged European Financial Stability Facility (EFSF) fund, further IMF involvement and the passing of the existing EFSF legislation through national parliaments (including Germany and Finland) provided some support at the end of the month, the situation remains extremely fluid with nervousness evident across all markets. Against this backdrop, the portfolio's delta averaged 11% for the month ranging between 8% and rising as high as 14% towards the end of the month as markets rallied. We also maintained a positive stance on fixed income with the portfolio averaging around 4 years of duration. This low delta is also combined with a conservative stock selection module that has little in the way of financial exposure, although we did add some Japanese bank names at the end of the month. While the macro backdrop in Europe remains extremely weak, we are conscious that much of this has arguably already been priced in with the Eurostoxx Index down over 23% year-to-date, but the S&P 500 Index down just over 10%. Geographically, the portfolio is positioned to be long Europe versus the S&P, captured by Dax and Eurostoxx futures, with our US equities hedged with S&P futures. Given the stress currently being exhibited in markets, we think that any equity rally will be led by Europe, while our conservative stock selection, low delta and downside hedges will protect the portfolio in any sharp falls. Within fixed income, the portfolio maintained a constructive view on UK 10-year gilts, which contributed significantly to performance and we took profit on some of the position as yields dipped below 2.4%. While we still believe that gilts will rally further, with the minutes from the Bank of England (BoE) suggesting that further quantitative easing (QE) was likely, our risk management process indicated that the trade was contributing significantly to overall risk in the portfolio. With yields so low, we reduced the size of the trade. We remain long Australian index-linked bonds and have some limited exposure in the US via cash bonds. Moving forward, there are clearly risks on both the upside and downside. Clearly the most pressing issue is a meaningful resolution around Europe, but against this backdrop there have been signs of more positive macro data from the US including stronger capital goods orders. Monetary policy will remain ultra-stimulative for the foreseeable future with further QE from the BoE highly likely with rate cuts from the ECB combined with extensive liquidity provision. Operation twist will flatten the yield curve and will aim to reduce longer term funding costs, although the follow through to credit markets and general risk appetite has not yet been seen. In this environment, we anticipate keeping risk low to preserve capital and note the volatility of the portfolio remains very stable.   Nedgroup Inv Global Cautious comment - Jun 11 Tuesday, 20 September 2011 Fund Manager Comment June was another volatile month for all risk assets and a 6% rally in the final four days could not prevent the MSCI World Index hedged to USD recording a loss of -1.8% over the month. Fixed income provided little diversification with the JPMGBI Index hedged to USD ending the month broadly flat. The catalyst for the volatility was the continued uncertainty around Greek sovereign debt with the government only narrowly passing deep austerity measures that allowed the release of EU and IMF funds thus avoiding short-term default. This came against a background of a very uncertain macro outlook with joblessness in the US remaining at elevated levels and weakening PMI surveys. Much of the weakness has been attributed to Japanese supply chain disruptions post the earthquake, particularly within the electronics and automotive sectors. Markets have reached a critical juncture and improvements need to be seen for the mid-cycle thesis to be confirmed. The June ISM survey may provide the first chink of good news on this front. The portfolio was positioned with a delta level that averaged around 20% for the month with bond duration around 2.1 years. Stock selection remains defensive at the core with a handful of our top picks within cyclical names, with the geographical positioning of the portfolio biased towards the developed markets as the emerging world continued to underperform. Maintaining a positive delta detracted from the performance of the portfolio and this was a main driver for the losses over the month. Within fixed income, we maintained our short at the front of the two year part of the US curve, and maintained our long position in gilts. The gilts initially performed very strongly in the overall flight to quality bid and was helped by the release of the Monetary Policy Committee (MPC) minutes that suggested that further bond purchases under an extended quantitative easing programme was still possible. However, our position detracted as bonds sold off in the last week of the month as equities viciously squeezed to the upside. We retain the position: seeing a significant loss of momentum in the UK economy and the government paying more attention to austerity measures, which despite high headline inflation, is likely to be beneficial for the bond market. Our long positions in Australian and UK inflation continued to add value, while our convertible bonds detracted value over the month and we continue to trim names, particularly at the higher end of the credit curve. Our long-term strategic view that equities offer value remains a central part of our investment thinking in the current environment. This view is based on our quantitative analysis that shows that stocks are still an attractively valued asset class and our qualitative research that indicates there is still significant money that could be switched from lower risk assets such as liquidity funds into equity holdings. Our macro view is that the recent soft patch of global data is just a temporary slowdown aggravated by the disruption stemming from the Japanese earthquake. We anticipate a reacceleration in the global economy aided by loose monetary conditions in the US, with Asia coming towards the end of its rate hiking cycle. Although bond valuations are stretched, we think that there are still pockets of value where curves are steep, allowing investors to collect the 'roll and carry' within the yield curve. We anticipate keeping a significant equity content in the portfolio within a strategy of low beta stocks, with futures hedging the portfolio. Although both bonds and equities were down this month, we still see diversification benefits in owning both asset classes, while acknowledging that a key risk to this view is the sustainability of the US fiscal position.   Nedgroup Inv Global Cautious comment - Mar 11 Wednesday, 25 May 2011 Fund Manager Comment In a month where events in Japan and North Africa have understandably been the centre of investor attention, the initial sense of panic in markets has at least temporarily subsided. Global equities were down around 6% during the bout of risk aversion with US 10 year treasury yields falling around 38 bps - relatively modest moves given the twin threats surrounding events at the Fukushima nuclear plant in Japan and the mounting violence in Libya culminating in UN intervention. The subsequent rally in equities has seen them regain significant ground with the MSCI World Index hedged to USD ending the month down 1.6%. Volatility as measured by the VIX Index ended the month below February levels and US 10 year Treasury yields ended the month almost unchanged. Against this backdrop the JPM Global Capital Preservation Fund (USD) maintained a relatively high delta for the month as our Global Strategy Team continued to remain constructive on risk assets. However our stocks retained a defensive bias with half of the 30% equity weight invested in Telecoms and other defensives which provide an attractive dividend yield with potential for capital growth at undemanding valuations. We have worked hard at finessing our market hedges which worked well as the market reversed as the Japanese and MENA crises took hold. In particular our Eurostoxx put options, where we were positioned to benefit in a sharp move rather than a gradual drift down added significantly to the fund and we took the opportunity to take profits on some of the position. We remain short the front of the Australian curve where we think it highly unlikely that the Reserve Bank of Australia (RBA) will cut rates as pricing mid month implied, given the inflation profile and terms of trades that are benefitting the country. The ECB underscored its hawkish reputation promising "strong vigilance" and we believe that the subsequent repricing offers a tactical opportunity to buy short dated European rates and we therefore added a small position in German two years. Finally we now own some Italian 2015 bonds in the portfolio. Whilst significant questions remain within the periphery of Europe we do not include Italy as a periphery country and believe that the premium demanded for Italian government debt does not fairly represent the relatively small deficit facing the government. This position adds attractive carry into the portfolio. Our equity geographical positioning remained biased towards developed over emerging markets (EM) which given their impressive rebound towards the end of the month detracted from performance. We have maintained that timing the re-entry into EM will be crucial for asset allocators in 2011 and we have started to scale into the trade, initially holding a long in Russia and as we moved through the month we added position to the broader EM region and more specifically Brazil. We also added a long NOK YEN currency position to the portfolio which has rallied significantly since inception, driven by the firm oil price and the co-ordinated intervention of the G7 to prevent either speculative or repatriation flows driving the Yen to damaging levels for the Japanese economy. Together with our short Australian position via a put option we do have some currency exposure although the latter in particular is defensive in nature. Over the course of March we took profits on our remaining European dividend positions. Crucially we started the month with a long position in Japanese equities and this probably warrants a more detailed explanation. We have been constructive on Japanese equities for a number of months. Japan is a beneficiary of the global economic recovery that in our opinion had been broadening and deepening and we believe that Japanese equities are attractively valued relative to most other markets. Although we had begun taking profit on some of our favourite names at the end of February we still had a small equity exposure which was partially hedged with some put options that reduced our overall exposure. Clearly having any Japanese exposure hurt performance but we took the decision to sell all of our Japanese stocks during the month and continue to run our small downside in options. We simply do not know what the likely economic effects will be and given the low risk nature of the fund we thought it prudent to cut positions as the market rallied from its lows. We are also questioning whether the recovery, which we thought was strengthening, is showing signs of slowdown with GDP estimates in the US for the first two quarters of 2011 being revised down by many economists. Within fixed income outright level of duration will remain low but we are looking at relative value plays within this asset class. We anticipate moving back towards EM opportunities in a portfolio where equities, despite the risks, still look like an attractive asset class especially when hedged with long VIX options and cheap downside protection.   Nedgroup Inv Global Cautious comment - Dec 10 Thursday, 24 February 2011 Fund Manager Comment The fund maintained an average delta of 18% during the month. Our asset allocation models still remain constructive on risk assets, with valuations, momentum and liquidity all looking favourable. From a qualitative perspective we felt there were still many investors that remain on the sidelines and valuations in fixed income markets look extremely stretched. We therefore favoured a modest risk position with some relative value geographical plays -notably remaining long in the US where, with the exception of the employment numbers, the economic data has shown some improvement. This is in contrast to Europe where we still feel the systemic problems within the periphery will continue to play out into 2011. We remain constructive on Japan where we think gradual outperformance against a backdrop of a slowly improving global picture is likely. Our convertible holdings and dividend positions continued to add modestly to performance and within our equity positions we took profits on some of our long standing exposure to technology and consumer staples and added to miners and some copper stocks. Our headline duration position for the month was modest but our market and curve positioning aided performance. We were short US 10 year Treasuries for most of the month, against longs in Japan, the UK and US 5 year Treasuries. For portfolio diversification we remain reluctant to take headline duration down to zero and maintained an average duration of around 1.3 years. Whilst our market positioning added value, any duration risk was going to detract in a broad bond market sell-off and we estimate that our fixed income positions were broadly flat although they did provide some diversification to the overall portfolio. Looking ahead we remain constructive on risk assets but recognise there are significant headwinds that will need to play out. These include the likely effect of Chinese tightening; the ongoing funding issues in the periphery of Europe and the fiscal consolidation that requires; the likely continued weakness within the US housing market with relatively high US unemployment and further ahead, the long term effects of the extraordinary monetary policies pursued over the last two years. None of these issues mean that risk assets cannot benefit but the need to remain flexible and isolate pockets of value remains key. We are less sanguine in fixed income markets where we think that we may be towards the end of a secular bond bull market and with real returns already stretched it is hard to see how yields can stay at their current low levels. However, we remain confident that we can continue to produce positive returns with our disciplined approach and our multi-asset approach.   Nedgroup Inv Global Cautious comment - Sep 10 Monday, 8 November 2010 Fund Manager Comment The Global Cautious Fund produced a return of +1.6% in September, against a gain of +6.9% for the MSCI World Index hedged to USD and a fall of -0.3% on government debt, as measured by the J.P. Morgan Government Bond Index hedged to USD. Markets looked to break out of their summer traderange and overcame the traditionally weak seasonal period to post impressive upside. The S&P 500 Index posted a return of almost +9%, the best return for September since 1939, while developed markets beat the returns of the traditionally higher beta emerging markets. Our delta remained mid-range, averaging 23% during the month, but increasing to a maximum of 30% towards the end of the month as our option positions picked up delta as spot prices moved up towards strike prices. We retain a bias to hold directional positions using options, given their known downside characteristics and we particularly favour the Asian and emerging market regions, given the higher likely levels of growth and consumption. This growth bias detracted on a relative basis, as the US market rallied aggressively on expectations of the Fed implementing a new round of quantitative easing, which also led to a significant weakening of the US dollar. It is interesting that the market appears to have moved on from worrying about the EU debt situation, believing that the backstop of the IMF and the European Financial Stability Facility (EFSF) can contain the crisis. We note that EU vs Bund spreads traded through the May 2010 crisis highs, however we are less convinced, concentrating our cash fixed income positions in German Bunds and AAA-rated supranationals. A major beneficiary of a weaker dollar is the US export sector, also making US plant capital cheaper to external buyers which could trigger a round of cross-border M&A activity. We reinforced names that can benefit from this in the cash equity portion of the portfolio, adding to exporters and companies with deep embedded brand value. We are now running over half of our cash equity weight in the US and have a bias to add names here. We have been using our convertible positions as a source of funding for this trade, accordingly the convertible allocation has fallen 5% to our target weight of around 15% at the end of the month. We still see value in convertibles, particularly good quality high yield bonds, but many of our positions have done well and given that we hold mostly investment grade issues, we think it is prudent to take profits given the continued demand for paper. Fixed income contribution was broadly flat during the month. A market where we see value is the Japanese government bond market, where we continue to hold long positions and look for the market to rally to sub 80bps, driven by the continued strength of the yen and expectations of policy easing from the Bank of Japan. We remain committed to our strategy of limited directional risk, instead concentrating on relative value and carry trades. Wewould argue that equity carry, particularly in the US, looks interesting and we feel that many investors like ourselves will look at the relative value versus alternative asset classes and conclude that on a selective basis, tactical equity investing makes sense on a risk/reward basis. Underpinned by this dividend yield and the sense that central banks are moving towards another round of easing, we feel that equities can make progress from here, although a market which is unlikely to benefit from the easing is the Euro region. We worry that the recent moves by the ECB to move away from extraordinary liquidity measures and the recent strength of the Euro make the region unappealing on a relative basis and we will look to now move our hedges to the Eurostoxx market. Finally, we welcome a new portfolio manager to the total return team, Shrenick Shah. A significant part of Shrenick's role will be to search for effective tail hedges in the portfolio. One of the features of the post-crisis world has been investor appetitefor this type of protection and the shortage of supply of these products from the banking and hedge fund community. Consequently, many of these trades are incredibly expensive. We have spent a great deal of time analysing these types of positions and will continue to look for appropriate macro hedge positions for the portfolio.   Nedgroup Inv Global Cautious comment - Jun 10 Wednesday, 8 September 2010 Fund Manager Comment June was another volatile and difficult month for investors. In this environment, the Global Cautious Fund produced a positive return of +0.6% for the month, against a further loss in equity markets of -4.3% (MSCI World Index hedged to USD) and a gain of +1.1% on government debt (J.P. Morgan Government Bond Index hedged to USD). We had reduced both the net and gross exposure in the portfolio at the end of May and continue to run muted levels of risk in the fund. The delta of the portfolio averaged 10% during June, with an average duration of around 1.5 years. While we have reduced risk in the fund, we remain in some of our favoured trades which worked well during the month. In fixed income, we have been running risk in the belly of the German curve and maintained a core position in US Treasuries, which worked well as equity markets continued to fall. We still see very little value in most global sovereign debt, but we have to accept that US Treasuries are still the one of the most liquid asset classes globally and they will perform well should the economic situation continue to deteriorate. An area that we are starting to feel offers interesting value is the UK Gilt market, with the recent budget highlighting the coalition government's commitment to reducing the fiscal deficit, a move that seems likely to protect the UK's AAA rating. With Gilts offering the highest yield of any similarly rated country, we feel they are likely to outperform on a sustained basis. We continued to add to our Asian geographic bias during the month and we see one of the benefits of the recent growth scare is a reduced likelihood of aggressive monetary tightening in the region. Although small, the move by the PBoC to revalue the CNY also acts as positive and we added some upside options on the Hang Seng, which look incredibly cheap. Our cash equity positions remain concentrated in the US, particularly large-cap, blue chip companies with a global bias. We have retained our exposure to the convertible market, believing that they offer a more attractive risk/reward profile than straight credit, particularly short-dated US-based bonds. Our outlook remains cautiously optimistic and we do not subscribe to the double-dip recession theories. We think that the recent dip in the data is a mid-cycle pause from well-above-trend levels of GDP growth. However, the risk of a more sinister outcome has risen and in our minds, the global economy has reached a fork in the road. One path we use as our central scenario is that growth slows but remains positive, the other path is that the structural issues in the global economy overwhelm the cyclical bounce that we have been experiencing, policy actions will ultimately prove ineffective and a deflationary depression awaits. We stress that the latter path is still an extreme scenario, but the recent roll-over in both the hard and soft data remind us that we should not completely discount this risk. We will look to keep risk in the portfolio low until we gain more clarity on the path of the economy. We intend to keep the strategic delta of the portfolio at the lower end of permitted ranges over the summer months. We will look to enter into relative value positions, both in the fixed income and equity markets, rather than directional bets. Additionally we will maintain the underlying cash investment in the most liquid, high quality investments in this uncertain environment.   Nedgroup Inv Global Cautious comment - Mar 10 Thursday, 24 June 2010 Fund Manager Comment The Global Cautious Fund produced a positive return of +0.6% in March, against an increase of +6.2% for global equities (MSCI World Index hedged to USD) and a fall of -0.1% on government debt (J.P. Morgan Government Bond Index hedged to USD). The benchmark, USD LIBOR returned 0.02% for the month. The Manager continues to believe that the macro environment is likely to provide a positive backdrop for risk assets, as the economic data continues to surprise on the positive side and believes that corporate profitability is likely to recover strongly given the high degree of operational leverage in the economy. Of course, the Manager asks how much of this is already priced in and would argue that most, but not all of the good news is currently priced into the market. After the significant gains of the past year, it is difficult to argue that global equities are cheap on a fundamental basis and for these reasons they maintain a cautious long equity position, with the delta of the portfolio averaging 24% during the month. This cautious headline number masks some significant geographic switches which took place during the month. The most significant being a decision to start rebuilding exposure in the Asia ex-Japan region. Both Hong Kong and China have lagged developed markets since the autumn, as participants worried about the pace and effectiveness of the authorities' response to the underlying inflation dynamic. Their strategic bullishness on the region has remained undimmed but they have been much more nervous on a tactical basis because of these issues. However, the Manager now feels that with valuations in the region cheaper than long-term averages, the risk/reward favours building a longer term position. They feel and have argued previously, that the early move by the People's Bank of China is a long-term positive as they respond to real growth and attempt to lay the foundations for a more sustainable recovery. Convertibles worked well during the month, rallying as credit spreads continued to tighten. Increasingly, the optionality embedded in this asset class is starting to drive returns - notably this option was virtually free at the start of 2009 and is increasingly becoming valuable. The average delta of the convertible positions has increased from around 20% to 30% over the past six months, as bonds move closer to their strike. The Manager continues to believe that their allocation to convertibles offers an attractive way of participating in the equity rally with a limited degree of risk. The Manager estimates fixed income was flat during the month. The modest amount of directional risk detracted as bonds sold off in response to the stronger data, however these losses were offset by some relative value positions, particularly in the Australian inflation market. The Manager's outlook remains cautiously optimistic, but given the size of the move in risk assets, they believe that they are in the later stages of the rally and any directional bets must be scaled accordingly. They also believe that betting on broad based index progress is likely to be unprofitable, correlations across regions and companies are likely to fall and bottom-up analysis at the stock and geographic level is likely to be a key determinate of returns through the rest of 2010. There is debate in fixed income markets about possible funding and solvency issues and much has been written about the periphery of Europe. The Manager's view has not changed; they believe that in the short-term a default will be avoided but the long-term issues to be solved are immense. A new twist has been the debate around the sustainability of the US debt burden, while 10 year swap spreads inverted towards the end of the month and in the last week a series of bond auctions were taken very badly by the market. These developments are worth watching, but they believe they are driven by technical issues rather than a fundamental deterioration and will look to selectively buy US duration on dips.   Nedgroup Inv Global Cautious comment - Dec 09 Tuesday, 23 March 2010 Fund Manager Comment The Fund produced a disappointing return of -0.5% in December, while the JPM Government Bond Index hedged to USD returned -1.1% and the MSCI World Index hedged to USD returned +3.5%. The benchmark USD Libor 1 month remained flat for the month. As outlined in last month's note, we made a conscious decision to dampen down risk in the portfolio into the year end, fearing exaggerated moves as markets became less liquid near to Christmas; consequently portfolio delta remained low during December, averaging around 13%. Interestingly, for the first time in 2009, it was the developed markets that outperformed, as many investors took profits in the Asian region and rotated into those regions that had lagged in the rally. This move hurt our geographical allocation, given that we retained a significant portion of our directional equity exposure in the Asian region, however much of the risk was taken with cheap options which limited the downside. Conversely, the move did benefit our underlying stock positions, following our decision over the past couple of months to accumulate large cap developed stocks with strong free cash flow and brand value. We continue to run a barbell approach, taking selective Asian exposure through property, commodities and domestic consumption stocks, offset by technology, energy and transport equity positions in the developed markets. Convertible bonds continued to perform well in December and accordingly we have maintained an allocation of around 25% to the asset class. Fixed income had a difficult month, with our positions suffering as curves bear-steepened. We continue to run with a flattening bias, believing that our moderate lypro-risk stance is likely to work while the developed curves remain steep and a short in 2 year rates is the best hedge for an (unexpected) increase in rates. Equally, a moderate long position in 10 year rates should work well in a flight to quality environment. We still believe that the recent inflation worries are exaggerated and in the short-term we look to buy 10 year duration on any dips. In the short-term we remain positive on risk assets. However, as we have contended all year, we believe this to be a bear market rally and, after a gain of over50% from the lows, we feel we are in the latter stages of the move. Accordingly, we are starting to increase the hedges in the portfolio, while taking only very focused bets, often with a known downside. We feel that 2009 was a year when the world pulled back from the abyss. The rebound was highly correlated across regions and asset classes, as a result of a globally coordinated policy response. As we look into 2010, we see much more dispersion and our responsibility as macro investors will be to identify the losers and the winners - namely those regions that can emerge from policy-induced life support to a more sustainable path of economic growth.   Nedgroup Inv Global Cautious comment - Sep 09 Wednesday, 9 December 2009 Fund Manager Comment NIF Global Cautious Fund gained 2.58% in September,boosted by continued strength in equity and bond markets. The MSCI World Equity Index gained 4.02% in the month while the JP Morgan Global Government Bond Index rose 2.26%. Cash rates remain moribund, with USD Libor adding only 0.02%. This leaves the fund up 6.49% for 2009, while USD Libor has gained just 0.45%. Septembermarked the end of BNY Mellon Newton's advisory role with the fund, and as of 1 October this responsibilityhas been assumed by JP Morgan's Global Multi-Asset Group. We have commented on the reasons for the change in previous communications, as well as in our Roadshowwhich took place during September.Talib Sheikh, the senior JP Morgan portfoliomanagerwith day-to-dayresponsibilityfor steering the fund, was introduced to Financial Advisers at these events, and the new investment philosophy and methodology were outlined. If there any queries regarding the changes, please contact your Financial Adviser or your Nedgroup Investments representative. Although the manager change necessitated a transition and rebalancing within the portfolio, this was achieved with a minimum of fuss. More importantly, exposure to markets was maintained throughout; clients were not at risk of being out of the market because of the changeover during a rally in any of the underlying asset classes. At the end of September, equity exposure stood at just over 40%, at the top end of the range, but biased away from cyclicals and towards defensives. This is in keeping with Newton's view that the consumer is facing significant headwinds, and sectors geared towards this side of the economy are likely to struggle. In the transition period, equity exposure has fallen sharply, in accordance with the portfolio construction philosophy implementedby the new team, and their current defensive stance. After such a strong rally, with the valuation levels of some stocks looking stretched, the new managers fear a short-term correction. The equities in the portfolio represent a collection of undervalued, quality names, with attractive dividend yield and coverage. With investment grade credit markets having rallied so strongly since the beginning of the year, investors will have to look to the equity market for new sources of yield, where income-orientedstocks look cheap on a comparativebasis and also provide attractive levels of dividend carry. Having said that, the new managersdo see signs of gradual improvementin economicdata as the unprecedentedglobal policy response gains traction. Whether these improvements are sustainable remains unclear and they are looking for confirmation in corporate capex spending plans and also signs of continuing improvement in the labour market. In such an uncertain environment, they will keep some exposure to moderate amounts of cyclical risk, positioning capital in regions and asset classes that are likely to benefit from the ultra low cash rates and ongoing government policy action. Current equity exposures are lower than investors should expect going forward, and the average level of equity exposure is likely to remain relatively low - perhaps averaging about 20%. Investors should be aware, though, that the use of convertible securities will provide additional exposure to equity markets. Shortly after the month-end switch, convertible bonds made up 6% of the portfolio, but this figure is expected to rise as the managers access the healthy convertible bond new issuance calendar, adding to new names on a selective basis. They still find value in specific names, but as with credit markets, believe that the "once in multi-year" cheapness has dissipated. The team works closely their Convertible Bond group to select only the most attractive bonds, particularly those where it is felt that the equity option is being underpriced. Just before month-end, cash levels in the fund rose as government bond exposure was reduced. The fund currently has no exposure to US Treasuries, but this underweight is partially offset with exposure to bonds issued by Germany, France and the Netherlands. As noted above, corporate bonds have rallied strongly, and exposures in this area are relatively low.   Nedgroup Inv Global Cautious comment - Jun 09 Wednesday, 16 September 2009 Fund Manager Comment NIF Global Cautious Fund gained 0.44% in June, extending its positive run to four months. Year-to-date returns now stand at 0.85%, while Cash has earned just 0.2% this year. The Newton Phoenix equally-weighted composite benchmark (MSCI World Equity, JPM Global Bonds and USD Libor) fell 0.09%, as equity markets around the world consolidated. This benchmark is up 2.04% for the year. Several recent indicators seem to suggest that the worst is over: the VIX index of expected volatility is back below pre-Lehmans levels; the latest Merrill Lynch Fund Manager Survey says only 7% of respondents believe there will be a global recession in the next 12 months (down from 70% who believed this just 2 months ago); banks in the US and UK have been repaying their emergency government funding; central banks have maintained their easy policy stances; even the housing markets have offered some good news as activity stabilises(albeit at very low levels). As a neat summary, the Citibank G10 Economic Surprise Index is near an all-time high as the majority of data readings have come in better than expected. On the back of all this positive news, equity markets rebounded nicely from March to May, with the MSCI World index rising over 45% from trough levels. But June saw the index slipping back by 0.41%. This is generally being seen as nothing more than a healthy consolidation. The view of the Newton team managing NIF Global Cautious Fund is that all the talk of "green shoots" and economic recovery is overdone. Much of the apparent economic strength of late has been driven by a bounce-back in manufacturing after the startling inventory de-stocking cycle that took place at the end of 2008 and the start of this year. The truth is that there is little chance of a sustainable recovery in growth until consumption rises, and this is unlikely to happen before employment levels stabilise. For the moment, lower mortgage rates and other incentives are encouraging spending, but with unemployment still rising, a continued rise in savings rates is inevitable.In the near term, share prices may be boosted by the ROE benefits of lower staffing costs, and a temporary blip up in sales, but the prospects for longer-term earnings growth are muted. Newton's process is largely theme-driven, and the overarching theme in their portfolios is "All Change." They believe there is a continuing move away from high leverage at all levels of the economy, towards a situation where debt is activelypaid down, not just serviced. This will be most noticeable at the consumer level as unemployment rises. There will still be companies and stocks which can outperform in this environment, but these will tend to be at the more defensive end of the investment spectrum. In keeping with this view, the fund is biased towards stocks whose returns will come in the form of dividends, not through earnings growth or rerating. New positions have been taken in areas like education and telecoms. These services will either be supported by government, or seen as essential by consumers. The equity portion of the portfolio contributed positively to performance in June, despite the weakness of equity markets in general. Government bond yields have been rising and yield curves steepening, which tends to indicate that investors fear inflation more than deflation. While headline inflation numbers have been falling - indeed, they are negative in many areas - this is more about the bursting of the 2008 oil price bubble than anything else. Core inflation remains higher than expected in most countries. With all the major economies of the world printing money, the value of all of those currencies must fall versus physical assets. The result is inflation. The fund has added to its positions in US TIPS (inflation-linkedTreasury bonds). The fund previously held exposure to gold, but has swapped some of this for positions in platinum and other industrial metals, which will also perform well in an inflationary environment. However, they also provide a slight hedge against the gloomy economic stance taken by the managers; if global growth does recover strongly, then demand for these metals will continue to increase.   Nedgroup Inv Global Cautious comment - Mar 09 Tuesday, 9 June 2009 Fund Manager Comment NIF Global Cautious Fund gained 1.04% in February, while the benchmark returned 0.04%. The equally weighted composite benchmark (MSCI World Equity, JPM Global Bonds and USD Libor) gained 3.33%. For the year to date, the fund has lost 4.13% while the composite benchmark has fallen by 5.39%. The fund is maintaining a relatively cautious stance, both at the asset allocation level, and within the equity portion of the fund. The current 31% equity exposure is just below the expected long-term average. There are no regional biases within the equity exposure, except for an underweight position in emerging markets. This will probably be corrected in the weeks ahead: despite some dangers on the economic front, many emerging market countries have very attractive underlying stories, backed by solid financial positions (low borrowing levels, good fiscal balances, strong reserves, etc,). The managers have been surprised by the strength of the equity rally in recent weeks, and are concerned that it is being led by lower quality stocks with weak balance sheets. As ever, the fund is being managed with a longer-term outlook, so short-term winners are not being bought. Instead, the fund is holding its positions in solid, defensive survivors, and adding to them when opportunities arise; the current sector rotation is providing many of these chances, and so the net equity exposure is slowly rising. There is some exposure to more cyclical names, including a position in Goldman Sachs which has proved particularly successful. This stock was bought at a time when the market had become overly negative on financials; while the share price had been marked down, the company's flexible nature, trading orientation and clean balance sheet were seen as attractive. Fixed income exposure is still weighted towards government bonds, with net exposure around 12%. While the managers believe that central banks will probably succeed in their efforts to push yields lower, they also believe that the long-term outcome will be higher inflation. To mitigate the risks this poses, the fund has physical positions in short- and medium-dated bonds, but has exposure to longer-dated bonds via options. There is also a modest 2% holding of US inflation-linked Treasury Bonds. Exposure to corporate bonds remains below 5%, with the majority of this tilted towards high grade names. Defaults in the corporate bond market will rise in the next 6 months, as the real economy finally feels the effects of the financial crisis; till then, credit spreads are unlikely to narrow too much, even if equities continue to rally. The fund continues to hold exposure to gold (about 4%). Although the gold price may retrace in the short-term, as investor risk appetite increases, the longer-term inflation-protection that gold offers remains attractive. Exposure may be added in the coming weeks. There are still no property or private equity positions in the portfolio, although these asset classes have rallied along with equities in recent weeks. Hedge fund exposure remains relatively low, with positions in just 2 listed funds of funds totalling less than 4%.   Nedgroup Inv Global Cautious comment - Dec 08 Monday, 30 March 2009 Fund Manager Comment Manager commentary Sheldon MacDonald - Senior Investment Analyst NIF Global Cautious returned 2.70% in December. The benchmark, USD Libor, returned 0.04%. A further comparison can be made against an equally-weighted composite of MSCI World Equity, JPM Global Bonds and USD Libor returned 3.45%. Since the inception of the fund in November, NIF Global Cautious has outperformed this composite by 0.82%. The manager believes the forced deleveraging in the investment industry that took hold in the latter part of 2008 has not yet fully run its course. Accordingly, equity exposure is slightly below the neutral 33% level, and is not likely to be raised in the short-term. Similarly, exposure to alternatives has also been kept low, and is now about 5% of the fund. However, there is another dynamic at play in this space. The fund's exposure to alternatives is via listed vehicles, most of which are currently at large discounts to NAV. This will automatically trigger continuation votes, and on wind-up of the vehicles, a significant proportion of the discount could be realised. With this in mind, the manager may add to selected opportunities. Exposure to fixed-income assets of about 38% is above the neutral level. About 5% is in US TIPS (inflation-linked bonds), with the manager taking the view that inflation is the inevitable result of the massive stimulus being given to the market. Most of the remaining fixed income exposure is in government bonds, but this is likely to be reduced in favour of high-grade corporate bonds, where the implied levels of default are well above the managers expectations.   Fund renamed Tuesday, 30 December 2008 Official Announcement Nedgroup Investments International Bond Fund has been renamed to Nedgroup Investments Global Cautious Fund   Nedgroup Investments Intl Bond 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%. Global government bonds benefited in the flight to safety, gaining about 0.5%. NIF Bond Fund lost 0.11% in June, as credit positions took their toll. This taking annualised returns since inception to 4.38%. 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 Bond'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 Investments Intl Bond Comment - Mar 08 Thursday, 22 May 2008 Fund Manager Comment The fund up 3.03% in March, while the JP Morgan Global Bond Index was up 3.15% for the month. Since inception, the fund has returned an annualised 4.78%. 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 Investments Intl Bond Comment - Dec 07 Tuesday, 26 February 2008 Fund Manager Comment NIF Bond Fund lost 1.1% in December, while the benchmark JP Morgan Global Government Bond Index fell 0.53%. For the year the fund earned 5.29%. 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. Money and credit markets experienced renewed distress in December, with investors concerned about the size of sub-prime related write-offs. In Europe, the spread between the ECB refinance rate and swap rates widened sharply, and at one stage was three times higher than its end-July level. While sub-prime pressures still remain, these markets recovered somewhat by the end of the month. 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 Bond fund has been renamed to Nedgoup Investments International Bond Fund.   NIIS Bond comment - Sep 07 Friday, 26 October 2007 Fund Manager Comment The fund generated a return of 1.14% in September. The fund has returned 5.28% in the past 12 months, with volatility of returns far below that of its benchmark. 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 subprime 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 - sell into strength. 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 programme 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 selectively to reduce equity beta in the portfolio. Increased volatility generates inefficiencies and greater opportunity sets for our managers. NIIS Bond is well placed to deliver good risk adjusted returns going forward.   NIIS Bond comment - Jun 07 Tuesday, 25 September 2007 Fund Manager Comment June was another weak month for global bonds, with the benchmark JP Morgan Global Government Bond Index losing 0.64%. NIIS Bond outperformed marginally, with a loss of 0.59%. Bond yields rose sharply early in the month. This sudden repricing reflected a view that global growth is improving again, with Q1 having been the low point for economic activity. Although the minutes of the Federal Open Market Committee's most recent meeting indicate that US policy-makers are comfortable with the outlook for inflation, some risks remain: capacity utilisation is high, the labour market is tight, and food, energy and mortgage costs are rising. For now, rates appear to be on hold, and expectations of lower US policy rates have at least been deferred, with markets pricing in no chance of a cut until 2008. As expected, the European Central Bank raised rates to 4% in June. Economic growth is robust, inflation pressures are building, and further rate hikes are expected. This implies further losses for bonds in the coming months. The Bank of England kept rates unchanged at its most recent Monetary Policy Committee meeting, with the governor on the losing side of a 5-4 vote. Although inflation seems to be falling slightly, it is probably not sufficient to prevent further rate increases. In Japan inflation has not yet definitively broken into positive territory, so no rate rises are expected there. Credit markets suffered a setback during the month as investors reassessed their willingness to hold risky assets. Equity markets were hit by increasing levels of risk aversion, and corporate bond spreads also rose. The pending demise of 2 Bear Stearns hedge funds which were active in leveraged structured credit markets has served as a reminder of the potential fallout that can be caused when liquidity dries up. In the last 12 months, NIIS Bond has delivered 6.08%, a significant outperformance when measured against the 2.70% return of the benchmark.   NIIS Bond comment - Mar 07 Wednesday, 23 May 2007 Fund Manager Comment The JP Morgan Global Government Bond Index rose by 0.17% in March. The NIIS Bond Fund outperformed this benchmark, delivering 0.60% for the month. Volatility in global equity markets continued in the first half of March, and this created some flight-to-safety demand for US Treasury bonds. 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. The US bond market seems to be taking these concerns to heart by pricing in two rate cuts in the next twelve months. 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. Deals will continue to be done as long as companies can continue to deliver cash flows sufficient to finance borrowing costs; with long bond yields around the world falling, this gap is still quite healthy. 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.   NIIS Bond comment - Dec 06 Tuesday, 13 March 2007 Fund Manager Comment In January, the world's bond markets continued the sell-off which started in December. NIIS Bond fund fell by 1.10%, outperforming the JP Morgan Global Government Bond Index benchmark by 18 basis points (bps). 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, but bond markets showed little immediate reaction. The US yield curve disinverted somewhat during the month, with long bond yields rising by more than 30 bps and short rates rising only 10 bps. 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 lifted early in January, catching the market by surprise. 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, preferring to focus on continuing M&A activity. The bond market sold off sharply though, and inverted further: short-dated bond yields rose by 50 bps, and long yields by about 30 bps. 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; this has contributed to the fall in the index benchmark, in which Japanese government bond returns are translated into US Dollars.   NIIS Bond comment - Sep 06 Tuesday, 28 November 2006 Fund Manager Comment The bond market ended the month with negative returns in September. However, NIIS Bond returned 0.30% thanks to good out performance from the underlying managers. 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 the recent inflationary concerns in the US. The picture was however not as rosy as the market moves may have indicated and some uncertainty remains tangible. 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. In practice, this sentiment has also resulted for the equity markets 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 equities, bonds and futures created by the Amaranth debacle. These included up to €2bn of sub-investment grade corporate debt in the European market. Sovereign bonds prices went up in Europe and the US, however, overall the JPM Global Bond Index gave back a little dragged down by the UK and Japan. Credit spreads ended the month fairly flat, but the bigger than average intra-month volatility enabled one US High Yield manager to capture some good alpha. On a 12 month basis, the fund has returned 1.44%, against the benchmark's 2.24%.   NIIS Bond comment - Jun 06 Tuesday, 28 November 2006 Fund Manager Comment Global bond markets were little changed during June, except in the US, where Treasuries fell sharply throughout the month, but rallied strongly in the last few days. Throughout June, the market focus was on the Fed. Early in the month, new Fed chairman Bernanke's hawkish remarks on inflation were blamed for sharp falls in equity and bond markets. Many investors believe that previous policy action (16 straight 0.25% rate hikes) is beginning to impact on growth, and further hikes may damage the economy. House prices have been booming in the US, fueling a domestic spending boom. But mortgage rates have risen steeply too, and fears abound that further tightening may put an end to that particular party. Against this backdrop, markets were nervous leading up to the Fed's Open Market Committee meeting in the final week of the month. Relief was plainly evident in the market's initial positive reaction to the 0.25% rise. However, the Fed's statement that the current economic slowdown "should help limit inflation pressures" was interpreted as reducing the likelihood of further hikes, which helped prolong the rally. NIIS Bond suffered a draw down during June, and appears to have under performed global bond markets quite substantially. However, this underperformance has been exaggerated by timing issues revolving around fund pricing methodologies. Because the rally in bond markets took place in the final days of the month, its impact had not yet been captured in the prices of the individual funds when the NAV for the NIIS Bond portfolio was calculated on the last day of the month. The fund will benefit when this timing difference washes out in July data. This is an unfortunate, but unavoidable effect of the pricing process. Over 18 months, the fund has lost 3.68%, while the benchmark has fallen by 4.11%.   NIIS Bond comment - Mar 06 Wednesday, 10 May 2006 Fund Manager Comment The NIIS Bond fund lost 0.52% in March, once again faring better than the JP Morgan Global Bond index which lost 1.21%. Over 12 months, the fund is a huge 4.04% ahead of the benchmark. This month was notable for diverging performances within Global Bond markets. The US, UK and Australasian Bond markets outperformed those of Japan and parts of Europe, as the latter markets started to price in faster rises in official interest rates. In the US, any hopes investors had harboured that the Fed might adopt a more dovish stance on interest rates under the new chairmanship of Ben Bernanke were quashed on the last Tuesday of the month, when the Fed raised rates by 0.25% and warned further tightening might be necessary to combat inflation. The Global High Yield market had another good month as the market was particularly helped by a shortage of new bond issues. While some individual Bond managers suffered in the challenging environment, the fund's deliberate high cash position once again proved to be a saviour along with strong performance from our High Yield holding. We are pleased with way the fund has performed this month. Given the lack of value in Bond markets and the widespread flatness of yield curves, we feel comfortable with maintaining high cash weighting in the portfolio   NIIS Bond comment - Dec 05 Monday, 13 March 2006 Fund Manager Comment The NIIS Bond fund returned 0.68% in January whilst the JP Morgan Global Bond index posted a gain of 1.28%. Global financial markets have picked up in 2006 where they left off last year. Stock markets continued their advance, the uptrend in commodities remained intact and credit spreads continued to narrow steadily. One key change however is that the US dollar has began to wilt as the Fed tightening cycle draws to a close. Our individual bond positions performed well against the benchmark this month, but fund performance was held back by the portfolio's hefty cash position, a decision that has served us very well in 2005. Our high yield fund enjoyed another month of very good performance. Stronger fundamentals this month, most notably a more robust US economy, strong corporate profitability and low default rates, helped bolster high yield bond valuations.   NIIS Bond comment - Sep 05 Wednesday, 26 October 2005 Fund Manager Comment The NIIS Bond Fund endured a marginal loss of 0.20% in September, outperforming the JP Morgan Global Traded index, which lost 1.93% over the same period. September was a weak month for US Treasuries as the Federal Reserve destroyed expectations of a pause in monetary policy tightening and raised interest rates by a further 0.25% to 3.75%. Japanese Government Bond's were unsuccessful this month and many of our managers are underweight in this area due to bearish sentiment on bonds in Japan at the moment. The improving economy, potential for reform of the postal system and the fact that deflation appears to be finally coming to an end means that some domestic institutions are starting to switch into equities. Our portfolio's material cash holding, both at our fund's level as well as via some of our underlying managers, contributed positively this month.   NIIS Bond comment - Jun 05 Wednesday, 31 August 2005 Fund Manager Comment The NIIS Bond Fund lost 0.40% in July outperforming the JP Morgan Global Traded USD, which declined 1.07% over the same period. July has been a bad month for treasuries as yields rose across the curve. The yield on 10-year US government bonds rose by about 0.35% to 4.28% (down 3% in price terms). This price movement is likely to be attributable to the realisation by investors that the economy is (at least in the short term) on a healthier footing than previously anticipated. Particularly encouraging has been the resilience of the consumer in the face of high oil prices and rising short-term interest rates. The outperformance of our fund in July is attributable to its high cash allocation and the fund's weighty high yield position. The high yield market continued the rally it has experienced since May. If the current environment persists i.e challenging interest rate conditions, rising treasury yields and an increasingly positive economic outlook, high yield bonds along with equities should continue to outperform safer investment grade bonds.   NIIS Bond comment - Mar 05 Tuesday, 24 May 2005 Fund Manager Comment The NIIS Bond Fund finished the first quarter with a loss of 1.31% in March, marginally behind the JP Morgan Global Traded USD Index, which fell 1.23%. For the quarter, the Fund was flat with its benchmark, posting -2.39% vs. -2.44%. The bears are winning the struggle in the bond market due to concerns over incipient rising inflation in the world's largest economy and the continuing rally in commodities, especially oil, which rallied above $55 per barrel during March. Heavy selling in the bond markets saw the 10-year US Treasuries yield continue to back up, peaking just short of 4.7% after reaching a low this year of below 4.0%. Investor fear was exacerbated following the profit warning mid March by the third largest corporate bond borrower, General Motors, and the ensuing expectation of its downgrade to "junk". Credit spreads widened sharply during the month and in Europe unwound all the previous tightening seen earlier in the quarter. Investors worried about the Fed abandoning its "measured" increases and raising rates more aggressively to stem inflation. Indeed, in March, the Fed raised its target rate a seventh time since the summer of 2004 taking its target rate to 2.75%. By contrast, the ECB and Bank of England left their rates unchanged. The expectation of higher short-term rates strengthened the US Dollar against the Yen and the Euro, recouping previous weakness. This volatile environment in March and indeed most of quarter one unsettled most of our managers. However, a strong performance by our biggest position and our large cash position helped mitigate large losses over the quarter. This fund made very good returns earlier in the quarter from positioning for long-term yields declining, and in March, being significantly short Yen helped offset some of the negative impact of being exposed to the long-end of the curve.   NIIS Bond comment - Dec 04 Tuesday, 22 February 2005 Fund Manager Comment The NIIS Bond Fund gained 1.10% in December whilst the JP Morgan Global Traded USD returned 1.71% over the same period. The fund ended the year up 8.08% versus an annual return of 10.10% by the index. US treasuries drifted higher in December, but the 0.25% raise in interest rates and a rebound in the US dollar eliminated most of the gains mid-month. Sterling bonds in particular performed well as gilt yields fell during the month. Clear evidence of further house price falls was the main driver behind this, prompting further speculation that the UK interest market rate cycle has peaked. Despite a reasonably solid year for equities the global bond market performed moderately well in 2004, however the bond market was largely helped by geo-political events and currency, commodity price and interest rate movements which dampened the outlook for economic growth. The high yield market posted a relatively strong month. Going forward we believe this sector of the market is vulnerable to price weakness as the current level of credit spreads could possibly come under pressure.   NIIS Bond comment - Jan 05 Tuesday, 22 February 2005 Fund Manager Comment The NIIS Bond Fund lost 1.42% in January whilst the JP Morgan Global Traded USD dropped 1.25% over the same period. The first trading week saw US treasuries trend higher after job payrolls revealed another month of mediocre job creation. However a strengthening US dollar and the release of the minutes of December's Federal Open Market Committee Meeting exposing that the US Central Bank was concerned about rising inflationary pressures caused US treasuries to drift lower during the rest of the month. All of our bond holding struggled in the volatile bond environment. The high yield market paused in January, breaking a streak of seven consecutive months of positive performance. The potential downgrading of certain companies for example General Motors to 'junk' status brought about a significant increase in volatility. Despite these weaker than expected technicals, the high yield market did manage to rally off its lows at mid-month to finish the month on an upswing. Our holding participated from this upswing and recorded a positive return.   NIIS Bond comment - Sep 04 Tuesday, 9 November 2004 Fund Manager Comment The NIIS Bond Fund gained 1.82% in September outperforming the JP Morgan Global Traded USD, which returned 1.38% over the same period. Bonds initially fell in September on concerns that the improving trend of job growth would accelerate the Fed's raising of interest rates. Also driving the decline in bonds was Chairman Greenspan's presentation to the House Budget Committee in which he stated that US economic growth was picking up after hitting a 'soft patch' earlier in the year. However favourable inflation news soon reversed the downturn. The month's net change in the ten year Treasury rate was a nominal one basis point increase. The US bond market continues to remains attractive due to its depth and perceived safety. Most of our bond holdings outperformed the index in September, with our high yield funds keeping in line with the sector's total return.   NIBIIS International Bond comment - Mar 04 Wednesday, 26 May 2004 Fund Manager Comment The NIIS Bond Fund gained 0.39% in March whilst the JP Morgan Global Traded USD returned 1.41% over the same period. The US and European benchmark 10-year bond yields ended March slightly lower than at the end of February. However, this masked significant movement in these yields. At the start of the month, bond yields decreased, spurred on by investor nervousness over the sustainability of the economic recovery after the release of weak February US employment data. The tragic events in Madrid, mid month, surprisingly had limited impact on the yield curve. Unsurprisingly Japanese Government Bonds (JGB) looked notably vulnerable this month given increasing evidence that the Japanese economy is on a sustainable recovery path and the 10 year JGB yield ended the month higher. The Federal Reserve kept interest rates stable, though speculation continued to mount that it would raise interest rates later this year. The European Central Bank and Bank of England for the time being also held fire on rate changes. Currencies were still volatile in March, with the US Dollar rebounding sharply on the back of a short-covering rally. Overall the performance of our bond holdings was relatively strong for the month as all but one of our holdings recorded positive returns. Our high yield holding was satisfactory in March and we remain reasonably optimistic that opportunities continue to exist in the near future.   NIBIIS International Bond comment - Dec 03 Tuesday, 10 February 2004 Fund Manager Comment The NIIS Bond Fund gained 2.78% in December whilst the JP Morgan Global Traded USD returned 3.93%. Our bond portfolio finished the year up 14.02% whilst the JP Morgan Global Traded index recorded a yearly gain of 14.51%. Global bond markets performed well in December despite economic data indicating that growth continued to be very strong and equity markets again generating positive returns over the period. These market gains came despite the dollar's continued weakness against most major currencies. The yield on the US 10 year maturity ended the month slightly lower, a trend that was followed in most other bond markets around the globe. Once again, corporate bonds performed relatively well and high yield even better following a continuation of the credit spread narrowing. The Fed left rates steady at 1% and indicated that changes from current levels are unlikely for a considerable period of time; however the market is already anticipating an increase in rates by the beginning of 2005 at the latest.   NIBIIS International Bond comment - Sep 03 Monday, 27 October 2003 Fund Manager Comment The NIBIIS Bond Fund returned 4.39% in September whilst the JP Morgan Global Traded USD returned 5.65%. The NIBIIS Bond portfolio posted its second highest return ever as all of our underlying holdings recorded positive returns for the month. Our largest holding returned 7.1% over the period helping to boost portfolio performance. Global Bond markets bounced back in September as the US 10-year treasury yield declined 60 basis points and is now back to the middle of this year's trading range. With the exception of Japan other bond markets have marched in step with US Treasuries. Analysts believe that this represents a countertrend rally in the bond bear market and recommend that investors use the current opportunities to reduce fixed-income allocations. This bearish view will only be confirmed once better economic data is released from the US. The high yield market posted strong performance in September to close out the third quarter on a positive note. Economic reports released during the month continued to point to an improving US economy despite poor employment data and a weak dollar. The high yield market proved to be resilient during the third quarter despite the significant volatility in the US interest rates. During the month our High Yield managers were focused on adding several new issues to their portfolios while our less aggressive managers rightly increased their duration and US exposure to benefit from an expected decrease in yields. Global bonds however remain vulnerable from a cyclical standpoint if the economy continues to improve as it s expected.   NIBIIS International Bond comment - June 2003 Wednesday, 13 August 2003 Fund Manager Comment The NIBIIS Bond Fund made a loss of 1.46% in June although it outperformed the JP Morgan Global Traded USD by approximately 0.1%. Global bond markets sold off sharply in June following the Federal Reserve's decision to cut Interest rates by only 0.25%. The market had been vulnerable to a correction following the earlier steep plunge in yields. With yields at such low levels investors are reluctant to rush back into the bond market after such a sudden setback and the Federal Reserve is finding it difficult to balance the need for low interest rates to stimulate the economy without the longer dated bond markets pushing in the opposite direction. Our managers performed relatively well this month despite the uncertain environment. Fund managers who had deeply discounted and more marginal credits generated the best returns during the month. Managers also favoured riskier assets such as corporate bonds because companies have benefited from an environment where central banks are committed to reflationary policies and interest rates are set to remain low for an extended period. Government bonds have also rallied strongly as investor attention was focused on the potential threat of deflation and the likelihood of another round of monetary policy easing. In currencies one of our core holdings continued to favour the euro versus the US dollar class, although the smaller interest rate differentials and improving US stocks could indeed influence this decision.   NIBIIS International Bond comment - March 2003 Monday, 5 May 2003 Fund Manager Comment The NIBIIS Bond Fund lost 0.13% % for March, verse the JP Morgan Global Traded USD, which gained 0.25%. The investment climate continues to be extraordinarily difficult given the geoplolitical and economic backdrop. The Federal Reserve maintained interest rates at 1.25%, as expected, and the ten and thirty year bonds weakened. European and Japanese bonds rallied, however, as economic data from both regions continued to disappoint. Investors are nervous about the Macro environment, which is sustaining the demand for low risk assets such as Treasuries even though it is generally recognised that the Treasury market is overbought. This means that the Treasury market is vulnerable to a quick reversal once confidence in the economy improves. Corporate bonds have continued to do well with spreads in the US and Europe remaining relatively tight, signalling that confidence in the business sector is holding up. They resisted the equity market-led declines, although geopolitical events did raise fears of short-term volatility. European corporates were more muted as a result of economic data. Some of our underlying managers still see value in credit, despite the recent rally. In currencies, the decline of the US dollar continued, approaching a four-year low versus the euro. The yen also fell during the month versus sterling and the euro, although it was only slightly lower versus the dollar, following action by the Bank of Japan to weaken the currency.   NIBIIS International Bond comment - December 2002 Wednesday, 5 February 2003 Fund Manager Comment The NIBIIS Bond Fund gained 3.99% for December, underperforming the JP Morgan Global Traded USD which gained 4.92%). Easing global deflationary pressures combined with the possibility of moderate growth, signal that government bond yields may rise. Some economists believe that the US economy may experience the largest increase in yields, since these bonds are the most expensive according to some valuation models, which in effect means that European and Japanese bonds look more favourable in the medium term. Also the Bank of Japan is aggressively increasing purchases of Japanese Government Bonds. The area where economists are most optimistic is the corporate bond market, which they believe will outperform government bonds.   NIBIIS International Bond comment - November 2002 Monday, 23 December 2002 Fund Manager Comment The NIBIIS Bond Fund returned 2.21% for November, outperforming the JP Morgan Global Traded USD (+0.03%). Despite record high debt prices the outlook (in the short term) still remains supportive for bond markets as uncertainty overshadows prospects for economic and equity market recovery. US treasury prices surged in the last week of November, lifted by a slight drop in stock prices and an early start to month-end buying ahead of the US Thanksgiving holiday. However, there is still a risk that we could see a sell-off in bonds if the global economy picks up, but Bond managers do not believe demand will wane while inflation remains low and thus believe that the good performance we have seen in the past will continue. Our exposure to corporate bonds also added value to the portfolio, over the period.   NIBIIS International Bond comment - October 2002 Tuesday, 26 November 2002 Fund Manager Comment The NIBIIS Bond Fund returned (-1.07%) for September vs the JP Morgan Global traded USD (-0.42%). Our exposure to corporate bonds negatively affected the portfolio. As expected, any news of strong economic growth will cause bond prices to fall, which is what the fund managers saw in October. Given that the FED has cut rates by another 50 bp and Treasuries and Bonds in the US are at very high price levels given current valuation, the fund managers might see a dramatic sell-off in bonds globally if economic growth does pick up. The one exception is Japanese Government Bonds, as the Bank of Japan recently indicated that it would increase its purchases in government bonds as a means of supplementing the disappointing anti-deflation plan from authorities. Despite a late month rally, the high yield market posted a decline for the second consecutive month. Corporate bond spreads were surprisingly sluggish during October despite the remarkable rally in equity markets, which posted one of the strongest October performances on record. Given the recent positive trend in mutual fund inflows, the above average mutual fund cash balances and strong institutional demand, their underlying managers believe that the technical data for the high yield market is encouraging over the near term.   NIBIIS Bond comment - September 2002 Wednesday, 30 October 2002 Fund Manager Comment The NIBIIS Bond Fund returned (+0.28%) for September vs the JP Morgan Global traded USD (+1.18%). Government bonds continued to outperform in September, in an environment of weakening economic growth, unstable financial markets and rising political concerns. Corporate bonds remained volatile, whilst crossover sovereigns were negatively impacted by political uncertainty in Brazil and the slowdown in global economic activity. US equities responded by testing new lows, and ten-year treasury yields fell to 3.6% in September. European bond yields were also lower, but lagged the US on concerns over inflation and fiscal dicipline. The UK economy continued to outperform Europe and the US, with house prices and retail sales remaining firm. Bonds were stronger in the face of external uncertainty but under performed other OECD markets. Japanese government bond yields were volatile over the quarter. After grinding lower for most of the period, they rose sharply in mid-September after the Bank of Japan announced an equity purchasing scheme to help bail out the banking sector.   NIBIIS quarterly review - June 2002 Monday, 14 October 2002 General Market Analysis The NIBIIS quarterly review is available on the NIB website.   NIBIIS International Bond comment - August 2002 Wednesday, 25 September 2002 Fund Manager Comment The NIBIIS Bond Fund returned +1.72% for August, slightly underperforming the JP Morgan Global traded USD +1.83%. The bond market also had a better tone, as high yield and distressed debt issues performed strongly off the mid-July lows, albeit in very-thinly traded markets for most of August. Government bonds have continued to rally, with the market's attention switching from equities to weakening economic numbers. Softer GDP numbers, falling consumer sentiment indicators and weaker than expected manufacturing surveys increased expectations for further monetary-easing in Europe and the US and drove yields lower. Corporate bonds have continued on a roller-coaster ride, but with equity market volatility falling towards the end of August, spreads to government bonds were able tighten from their wide historical levels. The Treasury market remains overvalued, leaving it vulnerable to a sharp sell-off when confidence in the economy returns. Most of our underlying funds performed in line, apart from GAM High Yield due to its exposure to lower grade components (+0.44%), Mellon Global bond had a good month outperforming significantly (+3.07%).   NIBIIS International Bond comment - July 2002 Wednesday, 21 August 2002 Fund Manager Comment The NIBIIS Bond Fund returned -0.17% for July, underperforming the JP Morgan Global traded USD 1.10%. This was due to mainly due to the corporate bond exposure in some of our underlying funds, with GAM High Yield fund being down 1.75%. Government bonds continued to rally in July, driven primarily by tumbling equity prices and a further deterioration in investor confidence. Yield curves steepened and the market even began to speculate over the possibility of further monetary easing from the Federal Reserve (Fed). Market expectations for 3-month LIBOR in December 2003 dropped almost 100 basis points in July to 3.38%. Longer-term interest rates also declined, as ten-year Treasury yields dropped another 30 basis points to 4.47%. Yields on corporate bonds lagged Treasuries lower; corporate credit concerns weighed on the market. The "AAA" rated mortgage market continued to be a beneficiary of eroding corporate credit. Bond investors would rather take their chances in agency-backed callable mortgage assets than in a dangerous minefield of defined-call, yet dubious-accounting-linked corporate assets. Credit has been particularly volatile, with the telecom and technology sectors once again suffering. Sentiment was dampened by a number of high-profile downgrades including Vivendi Universal in France and Ericsson in Sweden. In the US, the SEC announced investigations into a number of companies' accounts and WorldCom filed for chapter 11 Bankruptcy. Spreads widened during the month with BBB names underperforming higher rated credits as investors sought safety in good quality issues.   NIBIIS International Bond comment - June 2002 Wednesday, 24 July 2002 Fund Manager Comment With economic data continuing to paint a mixed picture and having little impact on global government bond yields, the dominant factor on yields over the quarter was the negative sentiment in equity markets. The equity bear market continued with a vengeance in June, with the S&P 500 Index posting its worst monthly loss (-7.25%) since September 2001 and its second-worst quarter (-13.7%) of the last ten years. This was fuelled by continuing concerns about share valuations, and the apparently fraudulent accounting at WorldCom and concern at other companies. Government bonds benefited from the flight-to-quality phenomenon, with the JP Morgan Global Traded Index (excluding currency effects) increasing by 2.93% over the quarter. Currency markets were dominated by the weak US dollar, which declined against all major currencies as concerns rose about the scale of the US current account deficit. Concurrently, the Japanese yen strengthened during the month as positive economic news and rising exports encouraged capital inflows. The Bank of Japan intervened in the currency market a number of times to prevent the yen strengthening further. The dollar / euro rate approached parity during the month with the euro also strengthening against the yen and sterling. Capital inflows into the Euro zone, out of the US, drove relative valuations as concerns over the US current account continued to harm sentiment. The Euro and the Yen both appreciated by more than 10% against the dollar, which had a positive impact on the JP Morgan Bond Index (including currency effects), which was up 11.34% for the quarter. The concerns about corporate accounting in the US led to investors dumping corporate-issued bonds, with the Merrill Lynch index of 1,351 high yield issuers dropping -6.52%, including a record -3.9% one-day drop on the day after WorldCom revealed its accounting fraud. The NIBIIS Bond Fund returned 10.13% for the 2 nd quarter of 2002 slightly underperforming its benchmark mainly due to the corporate bond exposure in some of our underlying funds with GAM High Yield fund being down 0.95% for the month and 0.56% for the quarter. Investec and Mellon Newton outperformed their respective benchmarks by 3.27% and 0.87% due to being longer duration than the index.   NIBIIS International Bond comment - May 2002 Friday, 21 June 2002 Fund Manager Comment The NIBIIS International Bond Fund was up 2.59% for the month, while the JP Morgan Global Traded Bond Index was up 2.72%. Global government bond yields ended May much the same level at which they started. After rising earlier in the month in anticipation of economic recovery, yields fell back to earlier levels after mixed economic data and subdued sentiment in equity markets proved an ongoing source of support for bonds. European bonds under performed US Treasuries; partly due to a robust IFO report on business sentiment in Germany and partly due tocontinuing inflation concerns leading to speculation of rising interest rates. Currency markets were dominated by the weak US dollar, which declined against all major currencies as concerns rose about the scale of the US current account deficit. The US Federal Reserve as well as the Monetary Policy Committee (MPC) have left interest rates unchanged at 40 year lows, which is a sign that short term outlook is still uncertain. The underlying funds within the Bond bloc had a good month, with all of our underlying funds outperforming the benchmark. The top performer was the Investec Global Bond Fund +3,66% outperforming the JP Morgan Global Traded +2.72%.   NIBIIS International Bond comment April 2002 Tuesday, 21 May 2002 Fund Manager Comment The NIBIIS International Bond Fund was up 3.26% for the month, while the JP Morgan Global Traded Bond Index was up 3.55% basis points. Bond markets were strong in April, with US Treasuries showing gains on the back of equity market weakness, though European bonds were more driven by the economic news. Japanese yields rose amid major foreign selling of JGBs. Continued rises in house prices and consumer confidence reaffirmed concerns that rate rises in the UK are likely to precede those elsewhere, causing mixed reactions from UK gilts. The US Federal Reserve has left interest rates unchanged at 40 year lows, signally that the first increase in borrowing costs remained months away. This confirms that the degree of the strengthening in final demand over coming quarters, which is an essential element in sustained economic expansion, is still uncertain. The underlying funds within the Bond bloc have proved to be fairly mixed with the tope performer being the Investec Global Bond (+4,23%) outperforming the JP Morgan Global Traded (+3.55%), and the GAM High Yield Fund (+0.49%) underperforming the most in line with economic uncertainty.

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