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Nedgroup Investments Global Flexible Fund Nedgroup Investments (IOM) Limited Nedgroup Investments Global Flexible Fund News Fund Name Changed Thursday, 8 August 2013 Official Announcement The Nedgroup Investments Global Balanced Fund will change it's name to Nedgroup Investments Global Flexible Fund, effective from 08 August 2013   Nedgroup Inv Global Balanced comment - Sep 12 Thursday, 15 November 2012 Fund Manager Comment September was, above all, a month of central bank intervention. The European Central Bank announced its outright monetary transactions (OMT) programme, buying up short maturity bonds and relinquishing any claim to seniority as a bond holder. Not far behind, and as anticipated since last month's Jackson Hole speech, the US Federal Reserve announced an open-ended quantitative easing programme, pledging to buy financial assets until the domestic labour market improves substantially. The Bank of Japan also jumped on the bandwagon, increasing its existing asset purchase programme. While monetary intervention is not without consequences, the central banks of the developed world appear to be responding with conviction to the worsening global economic environment. However, we appreciate the comfort of having some exposure in safe haven government bonds even though the return is uninspiring. Elsewhere, we maintained exposure in subordinated debt issued by financials such as Barclays and certain peripheral European champions such as ENEL, which provided positive returns. Equities also reacted positively to the ECB's measures. We maintain a full position in Google (Intellectual Property & Excellence), which continued to perform strongly. This was joined by Samsung, Jardine Matheson and SES (the European satellite company), which has completed its investment programme and its Security of Supply characteristics can now take hold as the key driver. Within Strong get Stronger, we introduced two companies; Ebay with its strong competitive position and online payment system Paypal, which we believe will be hard to disrupt and Associated British Foods with its strong balance sheet and the potential for Primark's european expansion. Elsewhere in the Fund, Property was disappointing, in contrast to the strong performance earlier in the year. Moving into the fourth quarter, we are cautious about the level of corporate bond spreads (the excess yield over government bonds) following the recent strong performance of credit. A consequence of the QE liquidity driven world is the temptation not to price risk correctly, and we continue to monitor our risk budget carefully. Equity valuations remain attractive versus government bonds on a long term view, and policy tail risks have materially fallen with recent announcements by the Fed and ECB. This should encourage further long-term capital flows into equity assets.   Nedgroup Inv Global Balanced comment - Jun 12 Tuesday, 28 August 2012 Fund Manager Comment With Europe still in search of a solution, government bonds, equities and currencies behaved in an unpredictable fashion for yet another period under review. However, on Friday, 29 June after 12 hours of talks, the leaders of the 17 euro countries at least grew closer to solving the immediate crisis. They dropped the requirement that governments received preferential creditor status (on crisis loans to Spanish banks) and in time, this should restore confidence within the investor community. As usual, the devil is in the detail, but the stressed peripheral debt markets recovered on the news. Safe haven German Bund yields climbed up from their lows and equity markets responded positively. Whether these gains extend into the summer will depend upon European leaders not declaring victory too soon. Despite the positive EU Summit and a commitment to spend €120 billion on infrastructure, there is still no common view on long-term strategy. The peripheral European economy is in a dire state, led by Greece with 22% official unemployment and rapidly falling living standards and this is impacting the earnings of companies worldwide. We are underwhelmed by conventional government bonds, which are as expensive as they have been for 50 years. We remain underweight. The corporate sector is on the whole in better shape financially than most governments, which is why on a selective basis, we hold corporate bonds and are reassured by the relatively attractive valuations of cash rich global equities. Despite the difficult market environment, a number of companies have performed exceptionally well for us and we mentioned previously the sale of Essilor - ophthalmic lens manufacturer - because the thematic drivers looked priced in. More recently, we have sold our holding in Central Japan Railway (CJR). We believe that a number of expensive high-speed government projects CJR is involved in overseas may be reviewed. Elsewhere within equities, we maintain relatively full positions in Wal-Mart Stores and the US home improvement retailer Home Depot. Residential construction continues to recover in the USA as a share of GDP. Whereas Home Depot is held with our Corporate Restructuring theme another beneficiary of the slow and steady recovery in the US economy is Pearson, which also performed well both relatively and absolutely during the period under review. Pearson forms part of our Strong get Stronger theme, alongside Coca-Cola and HSBC.   Nedgroup Inv Global Balanced comment - Mar 12 Wednesday, 16 May 2012 Fund Manager Comment In March 2012, markets seemed to distance themselves from macro-economic events. The momentum of the US economic recovery began to slow; inflation appeared to be levelling off in the emerging world; while the UK Chancellor’s budget contained little to surprise. In the US, the battle for the Republican Party nomination continued despite ‘market friendly’ Romney’s general lead in the contest, while Obama’s campaign continued to gain traction. Meanwhile, as Spain’s public deficit figures were ramped up for 2011-12, and its bond yields rose to 5.5%, there was consent across Europe to expand the bailout mechanism beyond its current €500 billion limit. Global equity and bond markets were broadly flat over the last month, but on a regional basis, the US remained strongest, with the S&P 500 making fresh post-Lehman highs due to supportive domestic data. Pfizer, Coca-Cola and Home Depot were among our best performers in this environment, but European stocks in our Intellectual Property & Excellence theme, like Essilor & ASML, also did well, despite their generally weaker domestic markets. Security of Supply was our weakest theme over the period due to lower oil prices and exposure to the Elgin gas leak through Total. We sold Procter & Gamble and took some profits on Home Depot, reinvesting the proceeds into Nissan and Rakuten (the online Japanese retailer) and topping up Polar Capital Technology Fund. Recent actions show the world's central banks are still happy to hold down interest rates, making consumption more attractive than saving in an attempt to support economic growth. However, longer term, there are still questions about how developed countries will reign in their bloated debt levels, and episodes of risk aversion are likely to return if recently raised expectations are disappointed. Despite this, and while the rest of the year will likely see more moderate equity returns, we feel thematic equities remain attractive over the longer term, especially with recent moves in gold and government bonds serving as a reminder that there are no longer any truly ‘risk-free’ assets.   Nedgroup Inv Global Balanced comment - Dec 11 Friday, 9 March 2012 Fund Manager Comment There were signs of optimism as the year drew to a close. The US saw indications of decent components for recovery, particularly in housing and manufacturing and GDP expectations for 2012 are also improving slightly. In the Euro zone, the ECB announced a three-year €489 billion bank liquidity programme, and the EU (excluding the UK), showed some unity in its conviction to solve the on-going crisis. In the emerging world, Chinese inflation fell back to pre-stimulus 2008 levels, allowing policy makers the potential to engineer a soft landing, while elsewhere in the emerging world the slowing pace of the Indian economy was a cause for concern. After quite a tumultuous second half of 2011, December proved to be relatively calm, with most equity markets realising their lowest volatility since July. Despite this apparent sign of some risk appetite returning, there was no corresponding fall in safe haven sovereign bond markets, with the government debt of the UK, Germany and the US all rallying into the year end to post some of their best annual returns since the 1990's. We took advantage of this rally by increasing our underweight further by selling a number of gilts during the month. Corporate bonds also performed well, with some of our senior bank paper in particular, staging a recovery and enabling the portfolio's fixed income exposure to outperform the benchmark during December. Within the equity exposure, US stocks led the way in returns with some strong performances from individual holdings such as Altria and Home Depot. Overall, the equity performance was slightly behind the benchmark as a number of stocks such as Oracle (which missed earnings expectations), disappointed. To position ourselves for 2012, we began to reduce our financial underweight, a positioning that worked well for us during late 2011. We began buying UBS and PNC financial, a US listed bank, both of which are attractively priced and we feel offer good prospects for positive price appreciation should global economies and sentiment begin to recover. Unsurprisingly, European stocks disappointed on the whole as macro concerns continued to spook investors. We took advantage of relatively sanguine markets by writing a number of options on stocks such as British Land, BP and BHP Billiton to generate returns in the form of immediate option premium, and also allow us to select potential entry points at which we would be happy purchasing the stock should the options be exercised. Thematically, the top-performing theme was Corporate Restructuring, with the market rewarding those firms (such as Home Depot and Pfizer) that are making internal changes to enable them to continue to improve in a low growth environment. Our largest weighted theme, Intellectual Property and Excellence, was somewhat more disappointing, declining overall during December despite strong performances from the likes of IBM. We remain confident in our underweight to government bonds, with short and medium-term yields now too close to zero to maintain last year's momentum. While 2011 served to remind investors that capitalism depends on confidence to work, there are signs that the measures recently taken by the ECB have restored some faith in the global financial system and increased the chances of recovery. Though, as expectations increase, so does the risk of disappointment and we feel a premium is still to be recognized for thematic companies that can combine superior earnings visibility with the support of conservative valuations.   Nedgroup Inv Global Balanced comment - Sep 11 Thursday, 22 December 2011 Fund Manager Comment As the third quarter ended, grave concerns over the Greek situation continued, with both banks and the European Financial Stability Facility (EFSF) ready for a default. The US witnessed the rebirth of Operation Twist (last seen in 1961) with a $400 billion plan to buy bonds, while poor news flow in both the US and Europe showed manufacturing at a standstill. In the emerging markets, there was a general loosening of monetary policy, and fears of a hard landing in China are increasing. Over the month we made a number of changes within the portfolio, all slightly defensive in nature given that growth and earnings expectations are still coming down. One change was to increase the duration of our fixed income component as shorter-dated yields are now very low and we feel the demand from pension funds for the long end dampens the risk of rising yields at the long end of the curve. This should also serve as an effective diversifier when equity markets are weak, and while our gold sale in July was a bit premature, the $200 price fall over a five-day period (during which equities also fell), justifies our caution on the metal. Broader commodities were also weak over the month as the outlook on Chinese demand deteriorated, and mining stocks were worst hit over the period, an area where we have little exposure, contributing to relative performance over the month. Overall, the relative performance was marginally positive during the month, with the more defensive nature of our equity book ensuring that the portfolio's equity exposure proved slightly more resilient than the benchmark during the month. In general, markets looked to be range bound, so we tried to reduce some risk at the top of this range by reducing some of the more economically sensitive names such as Saipem and Total. The market's attention is clearly on Europe and we do not believe the short term offers a solution that is amenable to both politicians and the electorate. The plans suggested by market commentators, central bankers and politicians are wrought with implementation difficulties, and the best case scenario for Europe seems to be a slow and bumpy recovery, the worst case an aggressive recession. Given this outlook, we remain underweight equities, but with a focus on those companies with robust earnings streams. While valuations are attractive by historical standards, without a resolution our bias is to sell into rallies, which often look driven by hope and rumour rather than the improving real demand that is required.   Nedgroup Inv Global Balanced comment - Jun 11 Tuesday, 20 September 2011 Fund Manager Comment A wall of worry with escalating tensions in Greece and increasing fears of a global slowdown hit the markets during the first half of June. However, afterwards, a series of events provided some relief: signs of easing in Japanese supply chain disruptions; a further drop in oil prices thanks to the IEA (International Energy Association) decision to release some of their oil reserves; more positive US manufacturing data; and a short-term resolution of the Greek debt crisis. Against this backdrop, the US Federal Reserve ended its quantitative easing program, but did not point to a tightening anytime soon, while the ECB signalled its intention to hike rates for a second time this year in July. Conversely, the Bank of England, on the back of weak domestic demand, moved away from an interest rate hike with further asset purchases seen as a distinct possibility if the economic situation worsens. Early in the month, fearful of short-term market weakness, we top sliced a number of our energy and emerging market holdings, slowly reinvesting the proceeds into companies with more defensive earnings, such as WalMart and Time Warner. We also began a position in Danone, which we believe is well placed to exploit the health and wellness mega trend; organic growth has recently been around 7% and we expect this to continue as the same trend gains traction in emerging markets, where Danone already generates 49% of it sales. Global equity markets fell by 5-6% (peak to trough) and banks, particularly in Europe, by substantially more. Into this period of weakness we became increasingly convinced that banks were priced too pessimistically and we took advantage of this through a purchase of Intesa San Paolo (an Italian bank), which has recently raised capital and does not have significant exposure to peripheral European debt. This transaction has begun to reduce our long held underweight position in banks. One can never time the markets perfectly, but - despite initial weakness - the position has now recovered and is moving usefully ahead. At the time of writing, Standard & Poor's claim to view the French solution to the Greek debt issue (involving rolling over the debt) as a default. Consequently, European politicians must head back to the drawing board, highlighting that uncertainty still remains. As such, keeping our equity weighting lower than would otherwise be the case - by looking at asset valuations alone, and layering in call options to protect against a 'white swan event' (ie a sharp upward move in markets) - seems to us to be an eminently sensible way of positioning the portfolio during the current period of turbulence.   Nedgroup Inv Global Balanced comment - Mar 11 Wednesday, 25 May 2011 Fund Manager Comment March was marked by three major events. First in line was the dramatic earthquake in Japan, along with the subsequent nuclear crisis and its potential economic consequences. The Bank of Japan has responded swiftly to the disaster by providing liquidity to the banking sector, increasing quantitative easing, and leading the first G7 foreign exchange intervention since 2000. Secondly, tensions in the Middle East intensified further with NATO's intervention in Libya, and large demonstrations in Bahrain and Syria. Finally, the European sovereign crisis also remained centre-stage. Indeed, not only did the EU deal on the bailout package fail to calm market fears, but the Portuguese government fell, fuelling expectations that Portugal would seek financial assistance sooner rather than later. Against this backdrop, and despite nascent signs that the manufacturing sector is losing momentum, G3 central banks hinted at starting their exit strategy soon, with the ECB notably hinting at a rapid rate hike. Whilst the equity exposure within the fund posted a small absolute decline during the month, it was ahead of the benchmark. Early in the month, we took the decision to reduce the overall equity exposure in the face of waning market sentiment, the spread and escalation of demonstrations in the Middle East, and elections in Europe. We sold Delta and FedEx (two stocks we felt were negatively exposed to the rising oil price) and then, using futures, quickly reduced our exposure further. This meant we were more defensively positioned when the Japanese tragedy occurred, and were able to protect value as the markets fell in response. We had a minor overweight to Japan, which we chose to maintain as given the international focus of our companies, we do not expect their revenues to be impacted longer term. Whilst the Japanese sell-off was relatively broad based, the international nature of the companies we own ensured the fund suffered less than the market as a whole. As the crisis unfolded and (in our opinion) a larger scale nuclear disaster looked less likely, we re-built our equity exposure at these lower levels, taking advantage of some very attractive valuations. As unrest in the Middle East pushed the oil price higher, energy concerns were once again pushed to the fore and as a result the energy sector was the top performer during March. Indeed, we added to the holding of Total at the end of month as it was becoming clear that an elevated oil price may prevail for some time. Financials lagged over the month as concerns over capital ratios in the face of Basel III worried investors, and the fund's general underweight position benefited the relative performance. This month, we also introduced a new position in MTN - a telecommunication company operating predominately in Africa and the Middle East, which is in an ideal position to benefit from it's market dominance in an region where telecommunications look set to grow rapidly. We also took the opportunity to reduce our bond weighting further after some strength during the month. Equity markets (and risk assets more generally) have been remarkably resilient given the conflux of recent events. In particular, there has been some recovery in the Emerging markets (the best performing area globally during March) which has benefited the fund's relative equity performance. At the same time, whilst government bond markets increased in value during the period of risk aversion, the gains were not significant and have subsequently reversed, remaining negative since the turn of the year and giving us increased conviction in our overweight equity stance. We believe the forthcoming earnings season will again prove that companies are in rude health, and that valuations are attractive both in isolation and against other assets and so whilst it is somewhat a consensus opinion (which makes us nervous) we continue to believe that equities will advance over the coming months.   Nedgroup Inv Global Balanced comment - Dec 10 Thursday, 24 February 2011 Fund Manager Comment In the US, the economic outlook has brightened further, thanks not only to still better-than-expected macroeconomic data and loose monetary conditions, but also to a new economic stimulus (the extension of the Bush's tax cuts and unemployment benefits). By contrast, most of the emerging world has continued to tighten monetary policy in order to bring high inflation back under control and avoid overheating. China hiked interest rates by 25bp on Christmas day for the second month in a row after a series of measures proved ineffective in draining liquidity. In Europe, the ECB decided to maintain its loose monetary policy in order to help contain the euro crisis. In the UK, facing high inflation on one hand and the austerity-related downside risks to growth on the other, the Bank of England also kept its monetary policy unchanged. December provided strong positive returns across most risk assets. The fund mildly outperformed the composite benchmark on a relative basis, driven largely by our overweight position in equities which outperformed fixed interest. Within the fixed interest component of the fund we have strengthened the average portfolio rating through purchases of a US Treasury and also a US Inflation Linked TIP as we believe inflation pressures could potentially increase due to higher input costs. During the month we initiated a new position in MGM Resorts in the US. We believe this company, which operates gaming, hospitality and entertainment resorts, will particularly benefit from the ongoing recovery during 2011-2012 in economic activity, particularly as unemployment falls and demand for conference centres and entertainment improves. As part of this domestic recovery we also added to our existing position in Automatic Data Processing, which exhibits AAA balance sheet, strong free cash flows and operational leverage to improving office activity. We also continued to add to our new position in Umicore, a materials technology company specialising in clean technologies such as precious metals recycling, automotive catalysts, battery components and thin film products. The company fits into our Security of Supply theme, based on its unique opportunity to exploit the "urban mine" through extraction of 17 metals from sources such as e-scrap, old auto catalysts, and mining waste streams. During December our European equities were the stand-out performers and our exposure to Japan and Emerging Markets produced poor returns on a relative basis. Japan Steel Works was the only equity to be sold during the month, which contributed to this negative relative performance. The position was sold as it has become increasingly clear that its competitive advantage has been eroded by Emerging Market new entrants much quicker than we had previously anticipated. Having now witnessed the traditional Santa Klaus year-end rally in risk assets, we turn our attention to 2011. Within equities, we believe three main themes will dominate. Companies exhibiting operational excellence should attract a premium to the broader equity market. Western companies will continue to benefit from expansionary policy driving economic recovery as opposed to emerging markets such as China, India and Brazil that exhibit more expensive equity markets and are instituting fiscal and monetary tightening measures to ward off inflation. Finally those companies that have disruptive technologies should be able to break down barriers to entry and produce exiting growth potential. We also believe that commodities and property will be well supported by monetary expansion programmes.   Nedgroup Inv Global Balanced comment - Sep 10 Monday, 8 November 2010 Fund Manager Comment September proved to be a positive month for most risk assets, with equities posting the strongest absolute returns. The increase in risk appetite was largely driven by a more stable macro-economic backdrop. Data from the USA showed leading indicators improving, combined with convalescence in manufacturing and consumer activity, as confirmed by The Institute of Supply Management as well as retail sales data. This gave investors confidence that the spectre of deflation and double-dip has been averted, for the time being at least. Stronger data was also published across western Europe. The Federal Reserve and Bank of England's confirmed commitment to further monetary expansion (in order to defend against the rise of a negative growth environment should activity stall significantly) added to this confidence. The fund outperformed its benchmark, with the main contributor being our overweight position in equities, where exposure remained between 67-69% during the month versus a 60% benchmark. It is interesting to note that the yield differential between equities and bonds remains extremely compelling across most major regional markets. Following a protracted period where one learnt to expect a reverse yield gap, it is now possible to invest in European and North American blue-chip companies with an earnings yield way in excess of that available from the long-dated government bond of that country. The hunt for income has also supported the property market over the month, and REITs also produced strong returns. The maturity of a Japanese yen denominated bond was actively not reinvested, creating a reduction in exposure to the currency and further increasing our underweight relative position as we anticipate weakening of the currency following a riseof 11% against the US Dollar this year. The expansion of the bank-loan program by ¥10 trillion and deepening concerns around the source of growth for the Japanese economy suggest a short-term correction is likely. We maintained our Emerging market currency exposure in Brazilian Real, Indonesian Rupiah, Korean Won and the Philippine Peso, as appreciation is expected thanks to both cyclical (strong growth, tightening monetary policy) and structural (convergence, favourable demographics) arguments. Sold entire position in Microsoft on fears of competition from a number of smaller, more nimble competitors in key areas of cloud computing, mobile data and mobile communication. Whilst the company is trying to diversify away from Windows, they have yet to have an impact of profits. Emerging market names continued to perform well, returning 14.1%. HTC Corporation was the main contributor returning 28% on the month (Taiwanese designer, developer and manufacturer of handheld and wireless devices on Android operating systems and is part of our Data Obesity opportunity set), as did Asia (11.8%) and Europe (11.4%). North America, UK and Japan all underperformed. We continue to hold gold as an insurance against central bank policy error, but have resisted increasing our exposure just yet -we are concerned that liquidity may become problematic due to the huge positions dwarfing physical gold demand which are being built up in exchange traded tracking products. As we look forward into the last quarter of the year we are hoping for confirmation that -on the ground -corporations are still witnessing a gradual recovery in activity which has been converted into double-digit earnings growth. We would also like to see that corporate management is beginning to become more confident to increase capital expenditure to drive future organic growth. This should easily be combined with progressive dividend growth, due to record levels of cash on corporate balance sheets across the Western world.   Nedgroup Inv Global Balanced comment - Jun 10 Wednesday, 8 September 2010 Fund Manager Comment Markets were very polarised in June, with investors' only distinction seeming to be between risk and non risk assets; furthermore, the negative correlation between government bonds and equities hit relative highs this month as US Government bonds posted their best start to the year for 15 years. We have discussed previously our belief that government bonds offer very little value, and we are positioned accordingly, although we have been remiss in our underestimation of the manner in which investors would flock to government bonds, despite the huge levels of government debt being the very point of concern for investors. The fund underperformed relative to the composite benchmark in June, driven by the overweight exposure to equities. Despite broad equity market weakness, stock selection outperformed relative to the MSCI world index. Fixed Income produced positive absolute but negative relative returns versus the index. Government bonds produced positive absolute returns in the main regions, with the exception of Europe, a consequence of mounting concerns surrounding the debt crisis. Corporate spreads moved little during the period. Whilst we are still positive on real assets, we are sensitive to market sentiment. As such, we reduced our equity weightings during the month in order to neutralise our exposure. The proceeds have been left in cash and funded the small increase in allocation to fixed interest securities and alternatives, in particular, a purchase of Bluecrest Allblue, a high quality, liquid hedge fund, which serves to build in further diversification to the portfolio due to it's low correlation to other risk assets. We do still feel that equities are undervalued, supported by the fact that analyst consensus expects headline year on year earnings growth for the S&P 500 index to come in at +26.5% for the coming Q2 earnings season. However, the market is concerned that the overwhelming debt burden will reduce global growth and destabilise the still fragile recovery. Investors are also grappling with the inflation/deflation debate; and (with data far from conclusive) markets can continue to be volatile. It is certainly true that economic data has shown a slowing of the strong growth thus far recorded, but in absolute terms it is still positive, particularly in manufacturing where data has remained especially strong. Turnover within the portfolio was very low over the period, with the only significant additions being Centrica, within our Security of Supply theme. Centrica sits in our opportunity set 'the need to procure energy from gas on demand' and exhibits a strong competitive advantage that is expected to improve. Security of Supply was the top performing theme, with defensive, high quality names such as Fresenius, Peabody Energy, International Power and National Grid being strong contributors to performance. National Grid, undertook a rights issue which we took up due to the large discount to an already cheap valuation. The company is expected to perform well in an environment of low interest rates which, are linked to their costs and also higher UK inflation, which is linked to their revenues. Corporate Restructuring was the notable poor performer for the month, with weakness from Monster Worldwide, Home Depot and Weyerhaeuser as a result of poor US data for employment (ADP), housing starts, new home sales, GDP and consumer confidence affecting the outlook for the economy. Whilst the data has been weaker than perhaps expected, economic growth continues to be positive in absolute terms and we retain exposure to these more cyclical businesses in the belief that a recovery in activity, albeit at a slower pace than first hoped, has become embedded. We remain positive on the longer-term outlook for equities. The uncertainty surrounding the funding issues of European banks (and indeed governments) are a headwind for markets at present. However, with the bank stress tests due to be published shortly, and the earnings season beginning in earnest next week, we may start to see the stability we require to begin rebuilding our equity weightings.   Nedgroup Inv Global Balanced comment - Mar 10 Thursday, 24 June 2010 Fund Manager Comment Risk assets continued to rally strongly in March with equity markets surpassing their February highs following a strong set of economic data. This included good employment and manufacturing numbers, positive business and consumer surveys and more recently a strong durable goods order in the U.S. implying that business confidence is returning as companies are increasing their capital expenditure. The market also took heart that the EU agreed on a "last resort" safety net for Greece in case of a threatened insolvency, and that the package would also involve the IMF. Interestingly, most major Government bond markets finished the month stronger and with credit spreads continuing to tighten on corporate debt, fixed interest investments provided a source of positive absolute returns for the portfolio. Both the absolute and relative performance for March was positive with the fund returning +4.35% against the benchmark at +3.21%. Equities outperformed the equity index with fixed interest also outperforming the bond component of the composite index. Property produced a strong absolute performance mildly ahead of equities. Government bond markets finished the month in negative territory. However the damage was largely offset by the continuance of credit spreads tightening on corporate debt. We continue with our policy to be overweight corporate bonds and short duration. With regard to asset allocation, equities were increased by investing most of the 12% cash that was held at the start of the period. The Fixed Interest weighting was unchanged. Both the Property and Alternatives (Gold) exposure was maintained at the same weight. Corporate Restructuring was by far the strongest theme over the period. Fiat, Citigroup and Monster Worldwide were up more than 18% as investors became increasingly confident about the economic recovery. This positive sentiment also favoured the more cyclical characteristics in our Pricing Power theme, with Steel, Energy and other Materials related names amongst the best performers. Pricing Power also performed strongly on a relative basis over the month. This was driven in part by our exposure to cyclicals, notably the airline stocks, through Delta Airlines. We see significant pricing improvements on limited capacity additions continuing. Naturally in this environment the more defensive, high quality characteristics of Strong get Stronger companies were a relative laggard, as were the higher multiple growth companies in Intellectual Property & Excellence, although it has been gratifying at last to see a good performance from Nintendo in this theme which announced plans to launch a new 3D consol and as a result returned +26% over the month (45% over the quarter). Proctor & Gamble, IBM and Cisco were added and new positions in McDonalds and France Telecom were started. All of these names exhibit attributes of the Thematic profile of Strong get Stronger; companies with defensive growth characteristics, supported by very strong balance sheets and high cash flow generation; attributes that the Manager believes will be rewarded by the market despite having lagged more recently. The Manager's thesis remains bullish, economies in recovery and market reasonably priced - 2010 consensus is currently for $79 of earnings on S&P 500, reflecting a multiple of 15x and inflation so far seems in check. They do have two specific nuances to this view: genuine growth stocks such as those on the Strong get Stronger and Intellectual Property & Excellence themes, although somewhat more expensive can sustain yet higher premiums. Cyclical and risk related companies, more akin to those in the Corporate Restructuring and to some extent the Pricing Power and Security of Supply themes, are compelling long term but susceptible to sentiment swings hinged around the economic growth and perceived interest rate trajectories. In reality, longer term the Manager remains less concerned about the latter issue and see interest rates remaining structurally lower for a prolonged period, but volatility in the sentiment provides.   Nedgroup Inv Global Balanced comment - Dec 09 Tuesday, 23 March 2010 Fund Manager Comment Positive economic and investor sentiment re-asserted itself in the last two weeks of the year after a shaky start to December. The evident difficulty the assembled nations in Copenhagen were experiencing in reaching accord on carbon reduction measures, together with worries G7 fiscal and monetary policy measures might be withdrawn sooner than expected had prompted a retreat in equity markets. However, a hastily agreed, if watered down, climate agreement between the US, India and China and better than expected global trade, and specifically US manufacturing and labour data, drove a typical Santa Claus rally on thin volume to the year end. The US dollar, which until December had weakened when equity markets were strong, instead rose against major currencies in sympathy with risk assets. Government bond markets in all regions fell on concerns of over issuance and the prospect that recovering economies and a strengthening oil price would usher a rise in inflationary pressures. We have remained consistently fully weighted in equities and the high quality of our thematic holdings resulted in our relative outperformance of 0.7%. The absolute return was 0.3% while the benchmark returned -0.4%. We sold certain cyclical stocks including Bucyrus and Hartford Financial, and added to the traditionally higher quality, more defensive areas of the market which, have lagged the rally, buying companies such as IBM, Unilever, VF Corp, National Grid and Novartis. The gold price retreated about 8% from last month's highs of $1215. The Gold Bullion Securities ETF and Barrick Gold fell in sympathy, but we added Kinross Gold to the portfolio to take advantage of this price weakness. We continue to believe gold should provide the opportunity or strong returns due to abundant liquidity prevailing, record low interest rates, negative sentiment towards the US$ and momentum trading. We also purchased EADS for the IP&E theme and this returned a healthy13%. A plethora of bad news surrounded the stock including an exposure to Dubai (a 3% shareholding and 4% of the near term Airbus order book) while concerns persisted over airline bankruptcies, and huge budget overruns of the fixed cost contract for the A400M military transport aircraft. Added to these resounding issues was the weakening US$ causing pressure on earnings as EADS is a company which derives most of its revenue in US$ whereas its cost is predominantly in Euros. By early December we thought the there was excessive pessimism priced into the stock and took a long position. In addition we also increased our Japanese exposure through Daikin Industries, an IP&E stock specialising in the manufacture of ductless air conditioning units. Within the fixed interest component of the fund, contemplation of sovereign risk coupled with a consensus view that Quantitative Easing will come to a halt in 2010 painted an uncertain picture for the year ahead and Government yields rose to reflect the market's anxieties. We bought into Irish Government debt once the NAMA (bad bank) bill was approved by parliament and credit spreads had stabilised. We have also been adding to our Brazilian exposure through a new corporate position in Eletrobras, the integrated electricity company. Whilst government tbonds have been the focus in the market, corporate bonds continue to outperform handsomely. Although the spectacular spread tightening seen since March 2009 will not be repeated, a recovering global economy in 2010 will continue to support the credit market. It is still our central case that the recovery in economies and markets will stretch into 2010, buoyed by low rates - that will likely not be raised in G7 countries in 2010 - and improving demand from inventory rebuilding. However, we question the trajectory and possibly the sustainability of the recovery in H2, as extraordinary Keynesian and quantitative easing measures have to be withdrawn and consumers, in particular, face fresh headwinds. It is conceivable, too, that the banking system will encounter renewed problems as the incidence of bad debts rise and there is a need to raise fresh capital. We expect equity market leadership to narrow appreciably from the broad beta-based rally experienced in 2009 to a smaller set of 'thematic' equities with strong balance sheets and cash flow that are exposed to favourable long-term trends and can survive and indeed prosper in difficult market conditions. This will be akin to a new 'nifty 50'.   Nedgroup Inv Global Balanced comment - Sep 09 Wednesday, 9 December 2009 Fund Manager Comment Despite being a historically poor month for asset returns, September saw impressive further gains for risk assets, especially equities, real estate and commodities, rounding off a positive quarter for portfolios in both relative and absolute return terms. A confluence of (a) accelerating global activity with evidence emerging that the recession ended in most developed markets in the third quarter (b) weak pricing pressures and (c) continued commitment from Central Bankers to maintain loose monetary and fiscal policies to assure economic recovery and a secure banking system helped sentiment. For nominal assets, while corporate bonds continued to recover sharply as investors sought enhanced yield, government bonds fared less well, hit by concerns about the future and scale of Quantitative Easing (printing money). Nevertheless,by the end of September,despite continuing good economicand earnings news, marketmomentumfor all assets began to fade as investors began to worry about impact of a withdrawalof extraordinarymonetary and fiscal measures.Gold broke decisively through $1000 and the dollar, notoriously weak during the recovery months began to revive, particularly against sterling. NIF Global Balanced Fund gained 3.47% in September, ahead of the 3.09% rise of the composite benchmark (60% MSCI World, 30% JP Morgan Global Government Bonds, 10% USD Cash). The fund produced an absolute return of 12.81% this quarter, outperforming the benchmark which rose 12.22%. During the quarter, the portfolio benefited largely from an increased weighting to equity and real estate, as well as to gold. We tilted a proportion of the equities within the fund to stocks with value, leverage and lower quality characteristics, as seen largely in our Corporate Restructuring theme. The Corporate Restructuring and Pricing Power themes both have weightings of 21% in the portfolio, and have returned 27% and 15% respectively over the quarter. Interestingly, they are the top thematic performers over the year too, having returned 30.9% and 29.7%. The outperformancecaptured in Corporate Restructuring this quarter can be attributedto the purchase or adding to of a number of laggardfinancials, such as UBS, Citigroup, Lloyds and Hartford Financial Services, as well as other names including Alcatel Lucent, Fiat, Nissan and Estee Lauder. UBS and Lloyds produced returns of over 40+% during September,both companies benefiting from being National Champions that have been protected by their respective Governments. Another top performer within this theme was Macy's which operatesdepartmentstores in the U.S and benefits directly from the inevitableneed to cut costs to maintain margins, which we see as a long term opportunity set. Pricing Power has been a high beta theme that has performed well with the recent "dash to trash" and investor's increased appetite for risk. Foster Wheeler, the US engineering company was a top performer within this theme, benefiting from the need for base load electricity Compoundingthe positive outcome of the decision to increase exposurein the Corporate Restructuring theme was the decision to reduce our exposure to Intellectual Property & Excellence. This proved to be the worst-performingtheme over the quarter, returning just 8.1% in the quarter. IP&E stocks often have a more stable, predictable income stream, and are innately expensive - characteristics the market has not rewarded this quarter. Names sold here include Qualcomm, Unicharm, Proctor & Gamble, Merck, Monsanto and Intel Corp. All are good companies but are currently too high a quality and too expensive for a market that has been attracted to - and rewarded by - value and cyclicality. The Strong Get Stronger theme was the laggard during September. Those companies with strong balance sheets and improving access to capital (for the strong companies only) in order to improve their market share proved to be least preferred by investors. As noted above, lower quality cyclical companies that had become oversold and that represented the most potential for upside produced stronger returns over the month. The ethos behind this theme has changed from "survival" to "Investing for Expansion". We have maintained a modest weighting to the Security of Supply theme, but have been reluctant to add to resource security, energy and commodity stocks after strong performance. Additional stocks with exposure to security / access to data and information are currently being considered for this theme. We maintained negligibleexposure to low yielding cash and an exceptionallylow weighting to sovereign bonds where duration was also kept low. We took the opportunity of a strong rebound in corporate bond prices to reduce exposure to high quality holdings where we considered further upside to be limited.We have maintainedlow exposure in relative terms to sterling which we see as particularly vulnerable given high UK debt levels and relatively weak UK recovery prospects. Despite the extent and longevity of the post-crisis rally - now the largest and longest in history, we remain positive about the prospects for further real asset gains until the year end. Although equity valuations have returned in most cases to "fair value", there is scope for a strong recovery in earnings thanks to high productivity and strong growth due to inventory re-building. Furthermore exceptional looseness in monetary and fiscal policy is likely to persist into 2010, underpinning recovery prospects and demand for risk assets, especially with progressive dividends.   Nedgroup Inv Global Balanced comment - Jun 09 Wednesday, 16 September 2009 Fund Manager Comment Although equities fell in June, the second quarter was the best in performance terms for more than 10 years. The pull back in June partly reflected profit taking, particularly of cyclical and financial equities that climbed the most after the waterfall declines of the winter. It was also a response to widespread capital-raising via rights issues and bond issuance. The key reason, though, was the need for investors to see evidence of an improving economic and company picture to justify the rebound. Confidence in the future has grown from excessivelylow levels, but so far this has not been matched by significant improvements in activity, housing and labour data. Equity valuations have moved from cheap, oversold territory to fairly valued but now require validation in terms of better company earnings. Sovereign bond performance in recent months has been poor with yields rising on concerns that vast government bond issuance will ultimately be inflationary. NIF Global Balanced fund returned 1.22% in June, compared with a return of -0.21% for its composite benchmark (60% MSCI World Equity, 30% JP Morgan Bond Index, 10% USD LIBOR). In June the portfolio saw some recovery from previous underperformance. On a relative basis the fund's equities mildly underperformed due mainly to our stock selection where we continue to favour the high quality earnings and balance sheet overlay of the portfolio, a characterist which underperformed early in the month. Having increased the equity weighting up to 69%, an overweight position versus the 60% MSCI World (Net Total Return) benchmark, we subsequently reduced this weighting back down to 63% as markets began to decline in the latter part of the month. From a Thematic perspective, IntellectualProperty and Innovation was the only Theme to add value against the benchmark, driven mainly by the defensive characteristics of companies such as Unicharm and Inverness Medical Innovation. After strong performances we have been reducing energy, industrials and emerging market positions, specifically relating to Russia. We have added to attractively valued defensive positions, which had lagged in recent months, such as Nestle in IP&E. Within fixed interest we maintained a bias toward corporate bonds which although susceptible to the back up in sovereign yields offer attractive yield enhancement opportunities and the prospect of capital growth from yield spread tightening. The gold position within the fund, which is held for its diversification benefits, had a poor month. Neither its potential as a hedge against inflation and/or protection against a failure of quantitative easing gave it support. Investors' sentiment swung toward discounting a longer more protracted period of loose fiscal and monetary policy in order to insure a recovery in activity has become imbedded. Property also ran into some profit taking, although our stock selection added value versus equities. We recognise markets could continue to drift sideways until there is greater clarity about the pace of recovery. However, this is a healthy consolidation characteristic of post waterfall market recoveries and should provide a base from which markets can grow in coming months. Equity markets are well supported by valuation both in historic terms and compared to bonds and also by short term interest rates, which we also expect to be kept at ultra low levels. Commodities and real estate will increasingly be sustained by abundant money supply and provide attractive investment opportunities for the portfolio. Corporate bonds remain the asset of choice within fixed interest.   Nedgroup Inv Global Balanced comment - Mar 09 Tuesday, 9 June 2009 Fund Manager Comment Equity markets ended the quarter strongly despite economic news pointing to weak activity levels and near term prospects. This followed renewed concern about bank bad debts and capital adequacy in February and early March that sapped investor confidence and drove equity and corporate bond markets to new period lows. Prompting the month end equity bounce were a series of unprecedented fiscal and monetary measures undertaken by several governments and central banks, in particular quantitative easing in the US, UK, Switzerland and Japan in advance of the G20 meeting. While largely experimental and uncertain in outcome, they demonstrated a strong and co-ordinated resolve to reflate global economies. These interventionist measures served to drive sovereign bond yields sharply lower and thereafter attract money back into risk assets such as equities with highly attractive valuations. During the second half of the month, the equity market rallied strongly, driven principally by financials, but also by more cyclical areas of the market such as materials and energy. The fund's low exposure to financials was somewhat mitigated by larger weightings in mining and industrial companies. Selected purchases of those financial equities that we perceive to have increasing transparency post write-downs, has allowed some traction to be gained in a very aggressive move upwards for the sector. As the equity rally gathered momentum, we took the opportunity to deploy some of the cash reserve built up over previous months, by selectively building up exposure to risk assets such as equity and quoted property. This had the effect of increasing the equity exposure of the fund up to a peak of 62% at month end from a previous underweight position. Areas that were targeted included increasing exposure to emerging market economies, which have continued to outperform developed markets on a relative basis in Q1. Over the month the fund's equities mildly under performed the equity benchmark returning 7.2% vs. the MSCI World (net total return), which posted a 7.5% gain. However, we chose not to chase the market rally aggressively as we have doubts about it's sustainability given the poor outlook for corporate earnings. The fund's fixed interest holdings outperformed the benchmark over the period under review. This was driven by corporate bonds where credit spreads tightened as investor's risk appetite increased toward the end of the month. Notably, bank Tier 1 capital staged a strong recovery having posted unprecedented loses earlier in the quarter. Within the alternative asset allocation gold produced a negative return over the month which drove the fund's underperformance relative to the composite equity and bond benchmark. We continued to hold exposure to gold as insurance against a failure in quantitative easing, but also as a hedge against the more medium term inflationary prospects of increasing the monetary base. Other commodities have begun to tick upwards such as Platinum where we have been increasing the weighting. Our central case is for a bottoming and revival in activity and confidence in the third quarter, so we continue to add tentative additional positions in equities with strong capital and cash flow support which exhibit attractive valuations. As we do not envisage a deflationary outcome, increasingly we see less merit in sovereign bonds with yields around 3% as there is little or no scope for capital appreciation. NIF Global Balanced fund returned 2.45% for the month, while its composite benchmark returned 5.27%. For the year to date, the fund has lost 8.38%, just ahead of the benchmark's loss of 8.41%.   Nedgroup Inv Global Balanced comment - Dec 08 Monday, 30 March 2009 Fund Manager Comment NIF Global Balanced fund returned 4.44% in December, slightly ahead of its benchmark which returned 4.08%. 2008 was the worst year for investment performance for several decades. It did end positively despite renewed Middle East hostilities, thanks to the absence of significantly worse data and thin trading volumes. Other "risk" assets such as corporate bonds also regained poise after a slew of negative data and news reports earlier in the quarter: weaker consumer and company activity reports, accelerating unemployment and further property price falls. Encouragingly, much of this bad news was already discounted in prices. The prospect of lower interest rates for the foreseeable future, more support for the banking system and quantitative easing measures meant that a slump has been averted. The portfolio held up relatively well with cash and government bonds providing strong gains in the face of weak data and the spread of different risk assets providing diversification benefits and in part some positive returns. A significant holding in gold and gold stocks, which enjoyed a strong rally also usefully contributed to performance. It is certain global economies will face a hard landing, directly attributable to the financial crisis and the adverse wealth and liquidity problems this wrought. However, it is our contention that this is largely reflected in valuations, and the monetary and fiscal measures taken by governments to avert a second round effect will mean stock markets can begin the healing process. The portfolio comprises diversified blend of attractively valued high quality, well capitalised company holdings with attractive yields that provide strong capital growth potential, together with sovereign bonds and cash that provide stabilisation characteristics and scope to add to opportunities as they arise.   Fund renamed Tuesday, 30 December 2008 Official Announcement The Nedgroup Investments Absolute Balanced Fund has been renamed to Nedgroup Investments Global Balanced Fund.   Nedgroup Inv Absolute Balanced 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 were10% down, and the US market fell by 8%. Global government bonds benefited in the flight to safety, gaining about 0.5%. NIF Absolute Balanced Fund lost 5.27% in June, taking annualised returns since May 2005 (the inception of the new mandate) to 3.35%. Food and energy price rises are lifting headline inflation numbers around the world. While economists and analysts may prefer to look at core inflation (which has not yet risen dramatically), investors and consumers are finding it harder to ignore the evidence that confronts them every day at the petrol pump and grocery store. This can quickly lead to rising inflationary expectations and set off an upward spiral in prices. Central banks are desperate to avoid this, and have been talking tough. So far wage inflation is being kept in check, and rates have not yet been hiked. However, markets are discounting imminent rises. The risk of a policy error is rising. With economic growth set to slow as the lack of access to credit works its way through to the real economy, deflationary policies are probably not required. But on the other hand, authorities need to do something to contain the oil price…. Despite all the economic doom and gloom, there are a few positive factors to encourage equity markets. Corporate balance sheets are quite strong (except for banks), M&A activity is continuing (especially in the small-cap space, and in specific sectors), exporters are doing well (especially those in the US, as well as Europeans exporting to emerging markets and oil producers), and infrastructural spending continues. Meanwhile professional investors are exceptionally bearish. According to the latest Merrill Lynch Fund Manager Survey, cash overweights are at record levels. Valuation spreads are now more than two standard deviations wider than normal. On the negative side, this is because the cheap stocks favoured by managers of funds in NIF Absolute Balanced's portfolio have become cheaper still, but on the positive side, it implies that there are plenty of opportunities to invest in attractively valued, healthy companies operating in growing industries.   Nedgroup Inv Absolute Balanced comment - Mar 08 Thursday, 22 May 2008 Fund Manager Comment The fund was down 2.02% in March. Since inception of the absolute return benchmark, the fund has returned an annualised 4.89%. Global financial markets are being driven by developments in the United States. In March, the Federal Reserve bank proved that it had both the willingness and the ability to preserve the US banking system. The decisive action to provide $30bn of guarantees, which enabled the takeover of Bear Stearns probably prevented further sharp falls in world equity markets. In other actions, the Fed cut the target Fed funds rate by 75bp to 2.25%. It also extended a borrowing facility through the Discount window, usually reserved for commercial banks, to all bond dealers. This facility has been tapped for $30bn in the past few weeks. Further, the Fed has agreed to take a wider range of securities from investment banks as collateral for short-term borrowing. These actions have served to stabilise the banking system and financial markets generally. The primary beneficiaries of the new environment are the banks; they need every bit of help they can get. The loose regulatory environment of the past few years allowed banks to leverage their equity to dangerous levels. Goldman Sachs and Merrill Lynch are 25 to 30 times leveraged. In the good times, this posture generated very high returns on equity. In an environment where credit-related asset prices are falling, the leverage is working against them. Though the banks may reveal further credit writedowns, the market now believes that the credit markets can begin to work again. The new environment provides a positively sloped yield curve, which is the bread and butter of the banking industry. This will help to recover some of the losses. A minority of prime and sub-prime borrowers will also be helped by the lower interest rate environment. Many of them face interest rate resets this year on adjustable rate mortgages and will welcome the lower USD Libor and T-Bill benchmarks. USD Libor has fallen from 5.5% late last year to 2.70% now. However, conditions in the wider mortgage market are not conducive to a housing recovery. Consumers do not yet have access to this cheap money. Borrowing rates for 30-year fixed rate mortgages are still at 6% or higher, and lending standards are tighter. It will take some time for the Fed's actions to provide support for house prices. In the short run, house prices are falling and a consumer led recovery for the economy is well into the future. The US stock market fell for five months in a row to the end of March, the longest such string of negative months in many years. Almost all stock markets and risky assets around the world moved together during this volatile period. In bad markets, correlations go to one. Now that there is potential for relief, we should expect to see increased differentiation; as generic market volatility diminishes, local market fundamentals will reassert themselves as drivers of performance. Some sectors and assets have been driven to price levels, which are unjustifiably low, and some selective but perhaps choppy recovery, can be expected. The Fed has taken the right actions to date. Investment banks are safer now that more emergency funding windows are open. Interest rates probably will be cut further. But there is a lag time for the full effect of rate cuts to be felt in the wider economy. In terms of growth prospects for the US economy and the volatility, which may surround the continued uncertainty, we are not out of the woods yet.   Nedgroup Inv Absolute Balanced comment - Dec 07 Friday, 14 March 2008 Fund Manager Comment NIF Absolute Balanced Fund lost 0.67% in December. Annualised returns have been 7.91% since the mandate change in May 2005 with volatility of 6.8%. This implies a Sharpe Ratio of 0.47. In the US, current indicators remain firm. Retail sales were strong in November, and Q3 GDP growth (initially better than expected as noted in this commentary last month) was revised upwards. The weaker dollar is boosting exports and supporting the GDP. But the risk of a recession is rising. Of most concern is the fact that corporate profits seem to be falling, and high operational and financial leverage will exacerbate any earnings contraction. Weakness at the corporate level is widening into capital spending, and may also depress hiring. Personal consumption has already begun to slow. Despite these risks, decisive action by the Fed should see a recession averted. Indeed, the Fed did cut rates by 25 basis points in December, and their rhetoric is indicating less concern about inflation, and more concern about credit issues. The market was initially disappointed at the size of the rate cut, but was cheered the following day when, in a coordinated effort, the central banks of the US, Europe, Switzerland and Canada made it easier for banks to borrow money without the stigma of going to the discount window. This has shown the willingness of the Fed (and other central banks) to take action, through unconventional means if necessary. UK rates were reduced in early December as well, and despite lingering inflation concerns (firm economic activity, rising oil and fuel prices), the potential for further cuts is high. A credit crunch could hurt badly in the UK: the household sector is running a significant cash flow deficit, household debt is at an all-time high, and the housing market is starting to correct, reducing the mortgage equity withdrawal boost to consumption. European rates were left unchanged by the ECB, which released a hawkish statement. Indeed, inflation in Germany is rising already. However, the possibility of rate cuts will have to be considered. Like Japan, Europe is reliant on external demand and is therefore vulnerable to a global slowdown. While they do export much more to the East than to the US, the "Asian De-coupling" argument (that Asia can stay strong in the face of a US downturn) is by no means a safe bet. Speaking of Asia, inflation in China is now at its highest level since 1996, and there is a risk that it becomes entrenched. Measures are being taken to tighten credit, but of course this may be at the cost of slower future growth. 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 Balanced fund has been renamed to Nedgoup Investments Absolute Balanced Fund.   NIIS International Balanced comment - Sep 07 Friday, 26 October 2007 Fund Manager Comment The fund generated a return of 2.99% in September. Over the last 12 months, the fund has returned 11.79%, while over two years it has delivered 9.80% annualised. Global financial markets have been hit by a disorderly re-pricing of risk over the past three months. Lending standards have tightened and lending has dried up across large parts of the credit spectrum. Central banks correctly intervened to provide liquidity to the banking sectors. The US Federal Reserve Bank lowered the Discount rate from 5.75% to 5.25% in mid-August. This was the signal that the markets were hoping for and sharp stock market declines were reversed. The ECB and the Bank of England pumped massive amounts of liquidity into the financial system. The Fed went on to cut the Fed Funds target rate by 50 basis points on September 18th. Equity markets also responded very positively to this move; by the end of September, many equity market indices were approaching new highs for the year. Regardless of the fundamentals in individual economies, almost all stock markets around the world moved together during this volatile period. Equity market pricing is a barometer for risk appetite. Universal appetite for risk and risky assets has declined over the past few months. Following the problems in the sub-prime mortgage market, credit spreads have widened substantially for all but the safest credits, and significant segments of the money markets have not functioned normally. Tighter lending standards and large unsold inventory will mean that the US housing market will remain under pressure for some time to come. Payroll growth is slowing and US GDP forecasts are being revised downward. It is not possible to forecast with certainty whether the slowdown will result in a soft landing or a hard landing (recession). On the positive side, equity valuations remain reasonable, earnings growth is still positive, companies have solid balance sheets and are generating cash. The recent volatility in the price of risky assets is symptomatic of the late stages of a business cycle. The Fed's recent "emergency" rate cut could be analogous to a similar move following the Long-Term Capital Management induced liquidity crisis of late 1998. Following that difficult period, markets recovered and the bull market in risky assets experienced a final leg up. Business cycles and bull markets can extend. Though there may be no cause for immediate concern, recent market activity has increased the probabilities that we are in the late stages of a bull market. In terms of asset allocation, the conclusion is the same - caution will be rewarded in the long run. Those investors who have capitalised upon the fantastic performance in equity markets and credit spread product over the past four years, should be thinking about taking some risk off the table. But as the prices of risky assets move higher, the risk increases and potential reward diminishes. The most prudent course of action is to lock in some profits or set price targets to accomplish this. A program of selling risky assets at progressively higher levels and switching into more defensive investments is the right one at this stage of the economic cycle. We continue to maintain a defensive posture in the fund. Increased volatility generates inefficiencies and greater opportunity sets for our managers and the fund is well placed to deliver good risk adjusted returns going forward.   NIIS International Balanced comment - Jun 07 Tuesday, 25 September 2007 Fund Manager Comment The main feature of global markets in June was a sharp rise in bond yields early in the month. The sudden re-pricing reflected a view that global growth is improving again, with Q1 having been the low point for economic activity. 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. Against this backdrop, companies have delivered better-thanexpected earnings, although earnings growth is at a slower pace than before. With dividend yields quite high relative to real bond yields, equities remain attractively valued relative to bonds. However, with the rise in interest rates, this is not as compelling as before. Could this be the beginning of the end for the wave of leveraged buyouts that has boosted markets in recent months? Equity markets were initially hit by the bond sell-off, but then rebounded. This pattern then repeated itself, leaving global equities generally lower for the month. Investor risk aversion is currently very low. For instance, hedge fund net equity positions are at extreme levels. While average share valuations appear reasonable, median equity valuations are high. This implies that small- and mid-cap stocks are overvalued relative to larger stocks. There are now some indications that investor attitudes are changing; the FTSE 250 (mid-cap) index fell sharply against the FTSE 100, and credit spreads widened sharply during the month. The setback in credit markets was caused by a reassessment by investors of their willingness to hold risky assets. As mentioned, 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 Balanced has achieved a return of 16.98%.   NIIS International Balanced comment - Mar 07 Wednesday, 23 May 2007 Fund Manager Comment Having enjoyed the benefit of some equity fund pricing timing differences in February, NIIS Balanced Fund slipped back in March as this effect unwound. The fund returned -0.75%, leaving the year-to-date figure at 1.40%. Volatility in global equity markets continued in the first half of March, but concerns appear to have been forgotten by the end of the month, with the MSCI World Index ending up 1.6%. We commented on the catalysts for this volatility last month, noting the previous complacency of investors as a contributing factor. Despite this warning from the markets, it seems complacency has not yet gone away. Corporate credit spreads are as tight as ever and the VIX Index (a measure of the expected volatility of S&P500 stocks) has fallen back to the mid-teens, having traded only just above 20% during the month: hardly heart-stopping levels! Part of the reason for the market's optimism is the health of the US corporate sector. Balance sheets are robust, growth prospects still seem good, and equity valuations are attractive. On the macro front, income and spending data were better than expected; the consumer juggernaut keeps on rolling. But the US Fed, at least, appears to have acknowledged that there are risks present. Although rates were left unchanged, their statement after the last FOMC meeting indicated their concerns on economic growth. The full effects of the subprime mortgage issue have yet to be seen: lending standards are being tightened, which may well extend the housing slowdown. In turn, equity withdrawals could fall removing a large chunk of discretionary spending from the economy. 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. On the back of healthy earnings growth, dividends are rising, both in terms of payout ratios and in absolute terms. Corporate activity is beginning, and will soon be boosted by some regulatory changes. These factors should all support the equity market in the months ahead. The fund continues to deliver strongly on its mandate, and since the move to an absolute return benchmark in May 2005, the fund has delivered annualised returns of 11.12%.   NIIS International Balanced comment - Dec 06 Tuesday, 13 March 2007 Fund Manager Comment After December's strength, equity markets started the year in more muted fashion, rising modestly, while the world's bond markets continued the sell-off which had started the previous month. NIIS Balanced returned 0.25% for the month, held back by the fixed income portion of the fund. 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. Although bond markets were largely unmoved by this, equity markets reacted positively. Equity valuations are not too demanding, and corporate earnings growth is robust. In fact, 64% of the companies which have reported Q4 results so far have exceeded expectations, while only 19% have disappointed. If the (disquietingly narrow) consensus view for a soft landing is eventually realised, there is plenty of scope for positive equity re-rating. European equities are still being boosted by excessive levels of liquidity, but economic fundamentals are positive. The US slowdown has had little impact; in fact, unemployment is falling and domestic demand rising. This is likely to lead to strength in the housing market and potentially broader asset price reflation. Interest rates are unlikely to be hiked in February, but the market is anticipating a rise by the middle of the year. UK interest rates were 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, though, preferring to focus on continuing M&A activity. Although equities are generally modestly priced, certain sectors are becoming quite expensive as investors incorporate bid premia in their valuation models. The bond market sold off sharply though, and inverted further: short-dated bond yields rose by 50 basis points (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 and the export sector continues to do well. Finally, Asian markets are still benefiting from high levels of liquidity. Strong US GDP growth, lower oil prices and prospects for further local currency appreciation are all positive for corporate earnings. However, equity markets have priced in the good news already, and so downside risks are mounting. Since the move to the new absolute return benchmark 21 months ago, NIIS Balanced has returned an annualised 11.5% with a volatility of 6.2%   NIIS International Balanced comment - Sep 06 Tuesday, 28 November 2006 Fund Manager Comment September proved to be a continuation of the Equity rally that started in August. The Equity funds held in NIIS Balanced also benefited from the market rotation that has seen capital flow out of energy and commodities and into other sectors. The Equity markets in the US and Europe reached levels not seen in 5 years. The main driver was the fall in oil prices, which translated into a slowdown in cost increases for the manufacturing sector. During the month, oil prices decreased by as much as 10.65%. Other commodities including Gold and Copper followed suit. This further eased recent concerns about inflation in the US. The picture was however not as rosy as the market moves may have indicated and some uncertainty remains 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 Eurozone 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 2½ year low. This is in sharp contrast with May this year, when the same indicator reached a 20-year high, indicating overconfidence. The current level could indicate a more sustainable trend. In practice, this sentiment has also resulted into a move by investors out of certain sectors, namely energy and commodities and into more defensive industries. The move was further aggravated by the temporary downward pressure on energy related equities, bonds and futures created by the Amaranth debacle. These included up to €2bn of sub-investment grade corporate debt in the European market. The sectors that benefited from this rotation, like food and beverages, healthcare, telecommunications and utilities, had been undervalued for a long time and are at the core of the portfolios of the value-oriented stock pickers. This has resulted in substantial out performance for the managers in NIIS Equity compared to their local relative benchmarks. 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. Over the past 12 months, the NIIS Balanced fund delivered a return of 7.84%, vs. the benchmark return of 2.77%.   NIIS International Balanced comment - Jun 06 Tuesday, 28 November 2006 Fund Manager Comment Following the weakness experienced in May, global stock markets appeared set to continue their draw down in June. Indeed, within the first two weeks of the month, the MSCI World index had lost 6% of its value, following the 3.5% it lost the previous month. However, that marked a turning point, and markets staged a strong recovery, especially in the final days of the month, to end the month at or very close to positive territory. US bonds followed a similar pattern, rising strongly in the final days of the month, although prices were still well below the levels they reached at the end of May. Elsewhere, major bond markets were little changed. Throughout June, the market focus was on the Fed. The market had clearly discounted an increase in rates, but fears began to mount that this increase might be greater than originally anticipated, and these jitters translated into falling prices in equity and bond markets. On 29 June, though, a 0.25% hike was confirmed, and the Fed's statement was interpreted as surprisingly dovish on inflation. Meanwhile, economic data was showing renewed signs of strength in the economy, easing stagflation fears. Finally, the strong housing market, which has been fuelling a domestic spending boom, but has become increasingly fragile, seems to have averted collapse. Markets rejoiced, and prices rallied sharply. Aside from this positive leadership from the US, equity markets around the world found support as value began to emerge at the lower levels. Expectations of future volatility returned to the low levels that prevailed prior to May. As markets stabilized in the latter part of the month, bargain-hunting became the order of the day. Many investors held excess cash in their portfolios, and when it became apparent that prices were unlikely to crash, they deployed this selectively back into equities (especially liquid, large cap names in developed markets) and US bonds. As sentiment improved, buyers became more willing to bid up the prices of these stocks, and global markets rose over 4% in the final two days of the month. NIIS Balanced suffered a draw down during June, and appears to have under performed equity and bond markets. However, this underperformance has been exaggerated by timing issues revolving around fund pricing methodologies, and will be reversed in the July data. Because the rally 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 Balanced portfolio was calculated on the last day of the month. To remain true to the absolute return mandate, the portfolio is built around a core of funds with a value-based philosophy. In the equity space, managers select shares on the basis of discounts to asset values or earnings and a belief that the market will ultimately recognize and reward their true potential. In recent months, shares of this type have led the market's strong rally, and the fund has enjoyed the benefit of this. However, in the downturn of May and June, the market sold first (fairly indiscriminately) those shares which had performed best up to then, and this dragged down the fund's performance. As noted before, investors perceive value in equity markets, and we believe the funds in the portfolio are well positioned to take advantage of mispricings as fundamentals return to the top of investors' agendas.   NIIS International Balanced comment - Mar 06 Wednesday, 10 May 2006 Fund Manager Comment The NIIS Balanced fund recorded a return of 0.95% for the month of March and has risen 4.14% year-to-date, thus comfortably beating its benchmark. Global markets continued their positive start to the year still driven by corporate activity, particularly in Europe where the electricity sector saw a spate of proposed deals. While Europe saw strong gains, Japan also made up some lost ground from previous months with the strength of the Yen in March benefiting overseas investors. The US market remained resilient despite the interest rate cycle perhaps extending further than originally thought - futures are now indicating twelve-month rates above 5%. A return of 2.24% by the MSCI World Equity Index provides some market context. The US managers fared reasonably well with our Small Cap manager performing particularly well on the back of a strong rally in the smaller capitalisation sector. Two funds were helped by their high weightings in energy, as oil prices moved back up to peak at $66 per barrel for the month. Another fund, which has lagged so far this year, bounced back helped by better news flow for internet-related stocks, especially Google after Standard and Poor's said the company would be admitted to the S&P 500 index. European markets continued to move up during March despite the European Central Bank raising interest rates for a second time this year. Corporates continued to deliver strong earnings and are increasingly using strong cash flows to finance acquisitions. Managers in this region recorded good gains, with some now starting to sell stocks where the valuations are less compelling and where positive newsflow has tailed off. Recent good economic statistics and a fiscal year-end rally in Japan helped both the Nikkei 225 and the Topix indices clear new highs for the year, with the latter in fact reaching its highest reading since the beginning of 2000. Our Multi Cap fund benefited due to a better equilibrium between Large and Small Caps this month, although the market's preference for Blue-Chips continued. Fears of rising commodity prices and ongoing interest rate concerns did not stop Asian markets from going up. Our manager, who fared better than the market, has added some good quality Taiwanese tech stocks as well as financial companies in Thailand which are out of favour at the moment. 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. Some of our individual Bond managers suffered in the challenging environment this month holding back overall portfolio performance this month.   NIIS International Balanced comment - Dec 05 Monday, 13 March 2006 Fund Manager Comment The NIIS Balanced fund returned 2.72% in January. After a disappointing month for the US market in December, Wall Street began the New Year in a buoyant mood with the Dow Jones finishing at its highest level for four and a half years. US equities rose as the minutes from the December meeting of the FOMC hinted that interest rates may reach their peak helping raise hopes that economic growth would remain strong throughout 2006. In stock specific news several broker upgrades to internet search engines Google and Yahoo boosted their share prices, although later on in the month this good fortune sharply reversed for Google as it was feared that the company may miss analyst estimates for the quarter. The majority of our US managers posted strong absolute performance for the month helped by good news in the technology and energy sectors - the oil price incidentally continued to hover around USD65 helping many of the major oil companies such as Exxon Mobil. The European and UK markets continued into 2006 in a positive mood with rising hopes of economic growth and receding fears of inflation. There were, however, some deviations in the market upswing during the month such as the early release of German Government growth estimates for 2005 which implied a weaker than expected Q4, and a terrible few days for the telecoms sector with most operators hit by France Telecom's profit warning. Our funds recorded impressive performance for the month with one of our managers (with a large bias in financials) recording a gain of over 11%. After a very volatile month the Japanese market managed to finish the month with a good return following on from the upbeat trend of the last few months. The sharp correction mid-month was largely attributable to the Livedoor scandal where the managers of the company were arrested following an investigation. The result was a collapse in the company's share price and a contagion effect on the market in general and the Mother's smaller cap index in particular. Our Japanese managers held up pretty well when the market tumbled and managed to perform well once the market rebounded. Our small cap growth fund particularly struggled in this environment, but did well to recoup losses during the month. Our Asian funds recorded strong performance for the month, despite some volatility during the month on the back of rising oil prices and the Livedoor scandal in Japan. Our individual bond positions performed well against the JP Morgan Global Bond Index. Our high yield fund particularly 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 International Balanced comment - Sep 05 Wednesday, 26 October 2005 Fund Manager Comment The NIIS Balanced Fund gained 1.22% in September. Global equity markets trended higher in September despite continued rising oil prices on the back of concerns over the economic impact of Hurricane Rita. With a substantial proportion of America's oil production and refining capacity situated in Rita's path, fears sent the oil price back up towards last month's record high and reignited worries about the economic impact of sustained fuel costs. Given these economic concerns US investors were disappointed at the Federal Reserve's decision to continue tightening monetary policy after announcing its eleventh successive quarter-point interest rate rise to 3.75%. On the whole our US equity component held up strongly in the challenging market backdrop. Generally positive news from the corporate world helped to limit losses as banks in particular were buoyed by strong quarterly results. A bout of merger activity in the internet and technology sectors also helped lift investors' moods slightly. Our deep value manager lagged its peers this month due to its overweight exposure to insurance companies and retailers, which suffered following disappointing guidance from some major players. Our European allocation posted impressive gains this month on the back of strong European stock market performances. The German DAX rebounded heavily in the last week of the month as investors decided that the country's political stalemate would not prevent restructuring taking place at a corporate level. The growth bias within our UK allocation continued to reward us. Our managers are finding attractive opportunities in areas that are seen as being dominated by growth stocks such as technology, telecommunications and particularly media. In Japan, September was the most positive month since March 1999. The Topix index rose by more than 11%, led by the banks, brokers, steels, autos, trading companies, machineries, real estate and construction, while electronics and the utilities were among the big losers. Large caps outperformed on the back of a strong flow of funds coming from all across the world. Our large cap manager recorded a gain of 13%, helped by its overweight exposure to financials. Growth and commodity related Asian markets, particularly Korea, fared well. However the rest of Asia treaded water with interest rate sensitive markets under pressure due to the Fed's hawkish view. September was a weak month for US Treasuries as the increase in the interest rates destroyed expectations of a pause in monetary policy tightening. Japanese Government Bonds were unsuccessful this month and many of our managers are underweight this area due to bearish sentiment on bonds in Japan at the moment. The improving economy and 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 contributed positively, at our fund's level as well as via some of our underlying managers, this month.   NIIS International Balanced comment - Jun 05 Wednesday, 31 August 2005 Fund Manager Comment The NIIS Balanced fund returned 1.88%. The equity component of the fund was responsible for all of the funds performance this month whilst the bond allocation detracted from performance. Global Stock markets managed to overcome nervousness caused by the terrorist attacks in London on 7th July to end the first week of the month decisively higher. All in all, markets have rallied strongly since then helped particularly by buoyant US market data. Investor confidence was lifted by stronger than expected June employment numbers, positive corporate reports and lower oil prices. A return of 3.43% by the MSCI World Equity Index provides some market context. Our US equity component made a weighty contribution to performance this month. Those managers with high exposure to technology were particularly helped as the sector touched a new high for the year following positive earnings reports from Advanced Micro Systems and Apple. Despite a rollercoaster ride of a month for European markets, our European funds managed to produce solid returns in July. Thanks to a recovery in steel demand, stocks in this area rallied as did auto stocks on the back of slightly lower oil prices. After much deliberation we have decided to remove one of our UK funds from the portfolio: a period of dramatic underperformance led to a loss of confidence, lack of conviction and a degree of style drift by the manager, which are unacceptable. Falling unemployment, a rise in industrial output and higher housing starts contributed to a favourable market environment in Japan. Our funds fared well due to their small /mid cap bias - an area, which continues to outperform the blue chips. De-pegging of the Chinese and Malaysian currencies gave a great boost to Asian markets as it relieved potential trade friction with the US. Our Asian allocation posted its best results for the year so far with one of our managers recording a gain of over 8%. 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. Note: Revised mandate awaiting South Africa FSB approval.   NIIS International Balanced comment - Mar 05 Tuesday, 24 May 2005 Fund Manager Comment At the start of March NIIS Balanced's mandate changed to target absolute returns over the medium to long-term in excess of US Consumer Price Index (CPI). The time horizon of the new mandate allows us to invest in managers who make investments over longer timeframes rather than attempting to speculate on share price movements fuelled by investor sentiment. In the equity allocation, we seek to use more value-driven managers and managers with a bent towards asset-backed shares. We may tilt the portfolio to opportunities where we have high conviction. Overall this should help dampen volatility. Inevitably, over shorter periods, our long-only managers may lose money due to adverse market environments or lag behind strong market moves. However, it is our goal to mitigate losses and to steadily compound positive returns. The market environment during March was very testing and the Fund fell 1.88%. While not the auspicious start we had hoped, it shows the unsuitable nature of this product to excessive focus on single month's performance. Losses of 2.16% by the MSCI World Index and 1.23% by the JP Morgan Global Government Bond Index for March offer some market context. Markets focused on the US macro data and the continued bounce in oil and other commodity prices, which pointed towards incipient rising inflation and slowing economic growth. Investors worried about the Fed abandoning its "measured" increases. Heavy selling in the bond market saw the 10-year US Treasuries yield continue to back up, peaking just short of 4.7%. Volatility picked up markedly due to the accompanying risk aversion and credit spreads widened. Our equity managers in every region with the notable exception of the US, where some of our managers are overweight in healthcare and technology, started 2005 strongly. Many of our managers were caught by the strength and amplitude of the moves caused by the change in risk aversion. While some of our managers who were overweight energy benefited, this was not enough to offset an uncomfortable month for most others. With the bond markets taking the brunt of the market gyrations it was unsurprising our bond managers struggled to post positive returns.   NIIS International Balanced comment - Dec 04 Tuesday, 22 February 2005 Fund Manager Comment The NIIS Balanced Fund gained 2.69% in December whilst the Weighted Index returned 2.92% over the same period. The fund ended the year up 12.00% versus an annual return of 11.74% by the index. The Global Equity market continued its year end rally in December as most of major world indexes posted healthy gains. Wall Street rebounded from a tough start to the month helped by encouraging economic data, increased merger activity and soothing comments from the Federal Reserve. As widely expected the Fed raised interest rates by a further 0.25% to 2.25%, though this barely moved the market as the Fed reassured investors over the outlook for the economy and stated that future rate rises would be modest. Most of our US funds outperformed their respective benchmarks this month with our largest holding outperforming by almost 3%. This particular fund has now beaten the benchmark for 14 consecutive years. Tech stocks were once again a positive contributor and Small Cap stocks triumphed over Large Caps. Despite rather dull domestic economic statistics the Japanese market rallied on the back of a very firm Wall Street. Both of our funds slightly underperformed the index in December, however, both funds have ended the year considerably higher than their benchmarks. Asian stock markets were relatively unaffected by the tsunami disaster, with many traders on holiday and volumes comparatively thin. The effects are largely country specific, with the main losses seen in hotel and travel-related stocks. The exposure of our funds to these areas is limited. The performance of our European and UK funds were mixed. UK funds in particular underperformed largely due to an underweight in retail - an area that performed exceptionally well this month. 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 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 International Balanced comment - Jan 05 Tuesday, 22 February 2005 Fund Manager Comment The NIIS Balanced fund fell 2.06% in January whilst the Weighted Composite Index fell 1.89% over the same period. January proved to be a very difficult month for the stock market as most of the major world indexes posted negative returns with the loss being particularly heavy in the first trading week of the month. Wall Street began 2005 cautiously after the minutes of December's Federal Open Market Committee Meeting revealed that the US Central Bank was concerned about rising inflationary pressures. The tone was such that investors were led to worry over a potential pick up in the pace and size of future interest rate increases, which would potentially slow economic growth and corporate profitability. Some of our US managers struggled this month, as those with overweight exposures in healthcare and technology were worse off. In January the NASDAQ Composite declined 5.20% dragged down by semiconductor stocks which struggled on the back of profit concerns. Our new absolute manager helped us this month. Mixed data released throughout January saw a volatile month for the Japanese market. Despite this, both our managers recorded impressive gains with one returning over 8% for the month. Their bottom-up fundamentals and small cap biases helped them considerably outperform their respective benchmarks. Asian stock markets started 2005 on a positive note largely due to continued strength in the export sector. Both of our funds performed in line with their benchmarks this month. European markets retreated on the back of a cautious Wall Street and poor news in the tech sector. The UK market however was more resilient and continues to remain attractively valued. Our component in this area remains stable. The first week saw US treasuries trend higher after job payrolls revealed another month of mediocre job creation. 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. Our bond holdings 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. 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 International Balanced comment- Sep 04 Tuesday, 9 November 2004 Fund Manager Comment The NIIS Balanced Fund gained 1.61% in September whilst the Weighted Composite posted the exact same return. September got off to a buoyant start underpinned by lower oil prices, upbeat comments on the economy from Alan Greenspan and a strong employment report. Technology stocks led the way, bouncing back from recent falls as National Semiconductor lifted some of the gloom surrounding the microchip sector by announcing better than expected earnings. However halfway through September oil prices spiked back up to record levels, spurred on by political unrest in Nigeria, causing the S&P 500 and the Dow to tumble to new lows for the month. Despite this, we are very pleased to report that all of our US holdings except one outperformed their respective benchmarks this month. On a relative basis our European and UK managers performed exceptionally well. Oil stocks were better supported as the oil price moved back towards record levels, helping markets like UK, with its large oil weighting, to outperform. Underperformance by our Japanese managers hurt us this month with one holding in particular lagging the market by 6%. Exposure to small caps, negative technical factors in Japan i.e. margin calls and high raw material prices contributed to the downperformance of our Japanese managers this month. We were slightly disappointed by our Asian component as both of our funds underperformed on a relative basis. Our managers however maintain their view that Asian markets will outperform the major developed markets due to their better economic fundamentals. 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 Balanced comment - Mar 04 Wednesday, 26 May 2004 Fund Manager Comment The Fund decreased 0.74% whilst the Weighted Composite index was essentially flat at 0.03%. Performance was largely affected by the equity component of the portfolio, which reflected the negative returns of the global stock market. In March, with the exception of Japan, global stock markets gave back some performance after eleven months of robust returns. The cause was increased investor concerns over February US job numbers, US election uncertainty and heightened geopolitical risk in the aftermath of the terrorist bombing in Madrid and escalating violence in Iraq. The slide in indices reawakens doubts over the sustainability of the economic recovery and with the MSCI World USD Index up almost 40% from the lows of March 2003, analysts believe a correction may still be a possibility. Our equity holdings were down in line with the overall market. Europe and UK were the worst performing regions in light of the Madrid bombing. In stark contrast to the rest of the world, Japan endured a phenomenal month with the MSCI Japan up 13.4%. This upsurge was largely due to strong exports, rising capital investments and signs of increased consumer spending. We are pleased to report that our Japanese equity holdings outperformed the index and returned 18.2% for the month. In addition, our Pan-Asian holding, experienced its highest return in five years. 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 the weak February US employment data. 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 ECB and Bank of England for the time being also held fire on rate changes. 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 Balanced comment - Dec 03 Tuesday, 10 February 2004 Fund Manager Comment The NIIS Balanced Fund returned 3.92% in December whilst the Weighted composite index returned 5.28% over the same period. Global equity markets ended the year on a strong note as the world's major indices rallied to record significantly high returns. This was facilitated by the breadth of positive economic data released during the month helping stave off worries about the sustainability of the upturn, and the sudden capture of Saddam Hussein, which dramatically boosted investor confidence. The US dollar continued to depreciate strongly this month falling sharply against the Euro leading to potential concerns about a weakening demand for US assets. Across the board, as markets have shifted towards smaller companies and financially leveraged names, it seems the consensus amongst most of our managers are that valuation opportunities are likely to be in the stable blue chip areas going forward. Global bond markets performed well in December despite economic data indicating that growth continued to be very strong and equity markets once again generating positive returns over the period. These market gains came despite the dollar's continued weaknessagainst 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 Balanced comment - Sep 03 Monday, 27 October 2003 Fund Manager Comment The NIBIIS Balanced Fund returned 2.87% in August whilst the Weighted composite index, which returned 2.55% over the same period. On the whole our equity holdings performed well again this month, but were let down by the performance of the US equity holdings. The MSCI Pacific, France CAC 40 and the FTSE 100 all recorded positive gains for the month. On September 22, reports that Japan would not sell Yen led to a sharp drop in the US market with S&P down 1.3% that day. The logic for the decline was that that the US dollar would decline and interest rates rise, as Japan would no longer buy US bonds with their excess dollars. Despite a combination of tax cuts and low interest rates investors still remain cautious largely due to the weak job market and political uncertainty that is currently gripping the US. Despite a bad September for the US our equity managers are still optimistic of a synchronised global recovery, but expect it to be a much slower, grinding affair than first thought. Over the month the Japanese market rose by 5.93%, but technical indicators showed it was getting overbought. Some of our Asian managers were able to cut their net positions when they saw the Yen strengthening thereby locking in their gains when the market fell back. An increased exposure to Pharmaceuticals and Utilities helped Asian Managers this month. Our new investments into Asian funds have indeed proved successful, as once again our Asian equities have produced the best returns in the portfolio. The UK equity market accelerated this month with the FTSE 100 index gaining 3.5%. Housing and consumer spending are strong in the UK, as households have taken advantage of low interest rates. Europe's other major economies have tried to bolster growth by implementing tax cuts, new spending measures and keeping interest rates low. The Bond holdings in the portfolio all recorded positive returns for the month. Our largest bond 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 in the past month, 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 and increasing exposure in the telecom sector.   NIBIIS International Balanced comment - June 2003 Wednesday, 13 August 2003 Fund Manager Comment The NIBIIS Balanced Fund returned 1.02% in June outperforming the composite index, which gained 0.31% over the same period. Global equity markets rallied in June, led by tech stocks and the release of pent-up demand following the post Iraq war lows in March. This followed expectations of a recovery in the US economy, supported by a further interest rate cut. However economic data remained fairly patchy, with increased consumer confidence setback by continued sluggishness in the manufacturing sector. The recent rallies in US equities should not at all be considered as a new bull market, instead analysts think it is rather a complex topping out process that began in 1999. This month most of our US fund managers have outperformed their respective benchmarks. The performance of our UK holdings fared well over the month with one specific position beating the benchmark by 2.8%. The rise in the stock market in the UK should reduce pension fund fears, which should increase the attraction of equities, especially given favourable valuations. Two of our three European holdings outperformed the MSCI Europe index for the month and we remain confident that this good performance will continue over the longer term due to an improving global economy, lower oil prices and lower policy rates which will stimulate investors to take on more risk. Asian markets drew strength from the US rebound as well as the receding threat of SARS. Both Hong Kong and China were removed from the World Health Organisation's travel advisory list, thereby triggering a liquidity-driven rally in these markets. The repositioning of our Asian bloc has proved successful, as all of our new holdings have considerably outperformed their respective benchmarks. 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 Balanced comment - March 2003 Monday, 5 May 2003 Fund Manager Comment In February the NIBIIS International Balanced Fund (-1.14%), underperformed the Weighted Benchmark (-0.56%). This was due to the equity component of the fund. March has been a month of tremendous volatility for World markets. US equities surged as optimism for a short war propelled the the NASDAQ up and the Dow Jones had its strongest week since 1998. Unfortunately, in the last week of the month markets came back as hopes of a quick resolution to the Iraq war faded. The S&P 500 (+0.96%) did however end the month in positive territory. Our underlying US funds had a good month with all but one of our funds up for the month. European bourses also had a difficult month as they sank to historic lows after news of a divided United Nations in the build up to inevitable war with Iraq. A couple of days later these bourses saw a reversal of fortune as investors shrugged off the looming war and snapped up some European bargains. Unfortunately this was not sustainable as news of the stronger than expected Iraqi resistance to the US led invasion became evident. The MSCI Europe ended the month down 1.49%. Our underlying funds in this region were mixed, but generally ahead of their benchmarks. Pacific market followed global markets lower with war concerns and the outbreak of the SARS virus. Our underlying funds in this area had a difficult month in March. 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.   NIBIIS International Balanced comment - Dec 2002 Wednesday, 5 February 2003 Fund Manager Comment The NIBIIS International Balanced Fund lost 1.39%, while Weighted Benchmark lost 1.00%. Some economists believe that after the easing of monetary policy by Central banks and growth in liquidity, equity markets may be in for a better year. There is still uncertainty about the ability of the U.S economy to sustain a recovery due to concerns over the possible decrease in the U.S. consumer spending, along with the uncertainty of what may happen in Iraq. On the consumer front, concerns are probably exaggerated, as the average consumer does not have a large stake in the equity market, but rather owns property, which is an appreciating asset and has a job enjoying rising real incomes. On the geopolitical front, even if there is swift resolve to current tensions with Iraq, the war against terrorism will last for years, with ongoing fears about more attacks against the U.S. The current geopolitical situation is not necessarily conducive to good financial market conditions, but there is no reason to pursue highly conservative investments, as the economy might not slide back into recession, corporate profits could increase and monetary and fiscal policy may remain stimulative. Easing global deflationary pressures combined with the possibility of moderate growth, signal that government bond yields may rise. Some economists believe that the U.S. 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 Balanced comment - November 2002 Monday, 23 December 2002 Fund Manager Comment The NIBIIS International Balanced Fund (+1.26%) underperformed its Weighted Benchmark (+4.19%), which was disappointing. Signs that US economic conditions may be improving played a part in rallying global equity markets during November. The US stock market rally, which began in October, continued in November with the S&P 500 index rising 5.7%, the Nasdaq Composite up 11.2% and the Russell 2000 index up 8.8% for the month. As in October, value stocks performed poorly as investors appear to be abandoning safety for the relative excitement found in technology and cyclical stocks. The Dow Jones Industrial Average recorded its biggest two-month gain since 1987 jumping 5.9% in November after rising 11% in October. UK markets have also rallied strongly with the benchmark FTSE 100 index posting its largest two-month gain in 4 years. Japanese investors seized on better domestic and US economic data, and the strong recent performance from Nasdaq to lift TOPIX. The rally allowed the broad Japanese stock index to finish its first positive month of returns since May. With no firm economic reform proposals on the table from the government, investors refocused on the beneficial effect of the better US data on Japanese economic growth next year. Even though there have been concerns that the US consumer sector is in an unsteady financial position and that a major retrenchment lies ahead, some economists believe that these fears are overstated, just as they have been over the past two years. The household sectors debt-to-income ratio is at a new peak, but there is no indication that it has reached a critical level. Most debt is in mortgages, and these are well collateralized. A bursting housing bubble would be devastating for the consumer sector, but this is not expected as housing is still affordable and there is little prospect of a rise in interest rates in the near future. Nevertheless, the growth in consumer spending is likely to slow in 2003, because the mortgage-refinancing spree has run its course. 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 Balanced comment - October 2002 Tuesday, 26 November 2002 Fund Manager Comment The NIBIIS International Balanced Fund (+1.26%) under-performed its Weighted Benchmark (+4.19%), which was disappointing. October saw a sharp bounce in equity prices, which was typical of a bear market rally. Stocks were overbought and Treasuries were oversold in October reversing the long-term trend. After continuous negative news and the worst six month performance in 28 years, the S&P 500 (+8.8%) staged its strongest percentage gain in 13 years and October's gain was the 38th best month for the index since 1928. The fund manager's core holding, the Legg Mason US Value Fund significantly outperformed the market over the month, gaining 11.30%. Some of their managers believe that the fund managers have seen the bottom of the market and are therefore extremely bullish. However, economic data suggests that it might be too soon to conclude that the recent reversal in stocks and bonds will continue. Consumer spending in the US is showing signs of losing momentum in response to slower income growth and fewer job offerings. This could cause doubt in the markets going forward and this is a situation that the fund managers are closely monitoring. Our underlying European and UK funds had a difficult month in October as most of their fund managers in this region were not expecting the sharp reversal in investment sentiment as they tend to look for valuations justified by sound fundamentals rather than sentiment driven markets. The fund managers are comfortable with their fund selection, as year to date most of their underlying mangers are ahead of their respective benchmarks. The views on Japan are mixed at the moment. On the one hand companies seem to be progressing well with restructuring and the early indications are that the results season is producing many more positive than negative surprises. On the other hand Japan's anti-deflation package, along with the dramatic drop in foreign purchases of Japanese shares is disappointing. The fund managers are currently happy with the performances of their underlying funds, but nevertheless one of their analysts will be meeting the managers during a fund-monitoring trip in the Far East in November. 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 Balanced comment - September 2002 Wednesday, 30 October 2002 Fund Manager Comment The NIBIIS International Balanced Fund (-4.32%) outperformed its Weighted Benchmark (-6.21%) by nearly 2%. The U.S. equity markets were dismal in September. The S&P 500 was down 11%. The Russell 2000 lost 7% while the Nasdaq lost 11%. Worst of all was the Dow, which ended the month down 12% to reach its four-year low. Investor confidence deteriorated further, firstly, because of economic data being generally poor, secondly because quarterly profit warnings and finally, due to the increasing likelihood of a war between the US and Iraq. We were however pleased with the performance of our underlying funds, which mostly outperformed their respective benchmarks, with MFS US Emerging outperforming by over 4%. The prospect of intensifying deflation and the lack of government intervention prompted the Bank of Japan (BoJ) to announce that it would buy equities directly off banks' balance sheets, which was more a cry for action than anything else. The best that can be said on the domestic economy is that currently it does not appear to be getting any worse. However, on the brighter side, Japan's export-led industries have continued to do well and this has been behind the relative recovery in recent months. Unfortunately our underlying funds marginally underperformed. September was also one of the worst months on record in the history of European equity markets with equity indices like the German DAX dropping as much as 23% and the MSCI European Equity Index ends the month down 13%. Our underlying managers have been looking, perhaps hopefully, for a final sell-off in markets and with the collapse in equities which has coincided with apparent forced selling in the last week of September, now may be the time. Our underlying funds were mostly in line with another good month from Threadneedle European, which outperformed by close to 4%. On the UK equity side we must report that we have replaced ABN Amro UK, due to the resignation of one of their key managers. This was replaced with GAM UK Diversified who manger uses a top-down approach to identify his total investible universe. The underlying process revolves around industries with depressed valuations, showing long-standing underperformance as a catalyst for change. This will be based on both fundamental and technical analysis, which should lead to out of favour companies that have shown a commitment to change or that they are restructuring. We were pleased with our UK block as both GAM UK Diversified and Liontrust outperformed the FTSE 100 (-10.15%) by 3% and 4% respectively. 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 Balanced comment - August 02 Wednesday, 25 September 2002 Fund Manager Comment The NIBIIS International Balanced Fund +1.45% outperformed its Weighted Benchmark +0.74%. The US equity market had its first positive month since March, at least as measured by the S&P 500, registering a gain of 0.65%. August saw plenty of intra-month volatility with the Dow Jones reaching levels it has not seen since September 2001 with the Nasdaq gaining for the first time since 28 June 2001. The S&P steadily climbed, but is still below its levels at the start of the quarter. The Federal Reserve Bank did not cut interest rates in August, but some economists feel this is imminent, with the weakness of the economy. Corporate news provided the markets clearer direction as the SEC's deadline for managements to take responsibility for reporting accuracy and a number of high profile corporate executives were arrested passed without too much noise. Of our underlying funds Legg Mason, which is a core holding (13%), was up 6.34% - this is due to a rebound in some of their major holdings that were affected by the recent sell-offs in the market. Europe has been the main underperformer for the year and even though stock markets were up in mid-August, the indices ended up flat for the month after weak consumer data in the US. Weak economic data in August confirmed that the Euro area recovery has stalled. A stronger Euro and the worsening global outlook hurt export orders, while domestic demand was undermined by a weak consumer sector and subdued capital spending. Our underlying managers do however see upside in European stock markets going forward and believe that European equities are cheap versus cash and bonds and remain undervalued on a relative basis. Most of our underlying funds outperformed their benchmarks, albeit with slightly negative performances. Economic recovery in Japan remains uncertain. Although trade surpluses widened during August, imports continue to decline because of weak domestic demand. In addition the economic weakness in Europe and the US and the strengthening yen continue to threaten Japan's exports, which is considered crucial to the country's recovery. Government spending is retreating, the business sector is under pressure from Asia and the economy is in a perpetual state of deflation. Still equities tend to rally whenever global growth prospects improve and the Japanese stock market held up, despite poor technical indicators. 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 to 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.   NIBIIS International Balanced comment - July 2002 Wednesday, 21 August 2002 Fund Manager Comment The NIBIIS International Balanced Fund was down 4.16% for the month, while its Weighted Benchmark was down 4.67%. US economic data released over July generally came in below expectations and this contributed to the negative sentiment in equity markets. The economy is still recovering but the pace is slower than consensus had been expecting, hence the disappointment with which the data has been received. The savings rate for US individuals is currently running at around 4% - it has increased slightly in recent months but not significantly. Although US consumers have had to get used to seeing the value of their stock-based portfolios diminish, the psychological effect of this has been partly mitigated by strong property prices; and the most recent four-week moving average of total new jobless benefits claims also showed a rise although remains below the important 400,000 level. Equity and credit markets took a beating through most of July with trillions of dollars of wealth from retirement accounts being lost, before a partial rebound towards the end of the month. The recent strength of the Euro should ease the inflationary concerns of the European Central Bank, allowing rates to be kept lower for longer, and providing further support to the economy. The financial sector has had an exceptionally difficult time. Particular issues here are relating to solvency for life assurance writers and the insurance sector generally. Obviously the spate of ratings downgrades casts question marks over the credit cycle, and places like France Telecom, Deutsche Telecom, Vivendi, Alcatel, all of whom have had very high level ratings downgrades in the past month or so. That has hit hard on the banks and we're just starting to see some downgrades coming through indeed from this sector. That weakness in the financials has spilled over into July. In July we saw another poor month for the Japanese market with the only positive aspect being that it fell less than some other markets in the globe. Over the month the Nikkei fell 7.0%. Although it's only two months since the market peaked at 12,000 it feels much longer. Then the market was not only excited by signs of the US and Japanese economic recoveries but also by the improvement in corporate profits in Japan. With US and European economic recoveries now in doubt, it looks as though Japan may again be dragged back into recession as the export led recovery comes to a grinding halt. This depressing outcome has been further complicated by the drop in the Nikkei below 10,000 which has again put the solvency of the Japanese banking system into question. 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.   NIBIIS International Balanced comment - June 2002 Wednesday, 24 July 2002 Fund Manager Comment The NIBIIS International Balanced Fund was down 2.30% for the month, while its Weighted Benchmark was down 1.85%. During June, the United States equity markets were impacted by several factors. These were fraudulent or questionable accounting by companies such as WorldCom, Tyco International and Xerox, concerns about the prospects for a recovery in corporate profits, terrorism fears and the existing conflict in the Middle East and between India and Pakistan. Equity markets globally showed erratic volatility with some very large one day moves (some of the largest historically). Our best performing US fund was JP Morgan Fleming Micro Cap Fund (-5.34%) vs the Russell 2000 (-4.96%). Our worst performing fund was Legg Mason (-12.30%) vs the S&P 500 (-7.12%), Most of this underperformance was concentrated in the telecoms and utility sectors which suffered from negative headline exposure and dramatic sell-off as investors showed strong preference for the more mature and "old economy" sectors. However Legg Mason investment style is long term in nature and based on fundamental valuation. If most of the concern in the market is relatively short-term, the fund managers expect Legg Mason to make meaningful positive contribution to our portfolios in a longer timeframe. We have sold out of Fidelity fairly shortly after investing with them due to the sudden resignation of their fund manager. The fund was replaced by GAM Star American Focus led by James Abate. James joined GAM in January 2001 and was the Portfolio Manager of the very successful Credit Suisse Transatlantic fund in which we had previous exposure. James adopts a pragmatic approach to investment that is ideal for the current environment in which overall performance will depend much more than in the past on disciplined valuation parameters and proven stock selection skills. The underperformance in our US bloc was compensated for by the outperformance of our underlying European and Asian funds with most fund managers outperforming their corresponding benchmarks over the month, with Threadneedle European small caps outperforming it's benchmark by 2.26% and Comgest Asia outperforming by 3.98%. 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 month was the negative sentiment in equity markets. Government bonds benefited from the flight-to-quality phenomenon, whilst 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. GAM High Yield was down 0.95% for the month. Investec and Mellon Newton outperformed their respective benchmarks by 3.27% and 0.87% due to being longer duration than the index.   NIBIIS International Balanced comment - May 2002 Friday, 21 June 2002 Fund Manager Comment The NIBIIS International Balanced Fund was up 1.08% for the month, while its Weighted Benchmark gained 1.07%. Strong figures from first quarter gross domestic product (GDP) reports indicated an improving US economy, but due to recent weakening unemployment, consumer confidence and retail sales throughout the month put a damper on equity markets. This lack of conviction on economic recovery coupled with concerns about the weaker U.S. dollar, corporate accounting practices, interest rates and inflation has caused the Dow Jones Industrial Average to struggle to stay above the psychologically important 10,000 level. Our top-performing Fund was Credit Suisse Transatlantic Fund, which was up 1.99% vs S&P 500 which was -0.73%. Least well performing was the JPMF America Micro Cap Fund, which was down 2.93%. Economists keep reassuring us that economic recovery is on the way but Eurozone economic activity remains lacklustre. Most major indices are at six-month lows even though forward-looking indicators continue to move upwards, with consumer and business confidence having respectively risen to nine and ten month highs. Our fund managers feel that shares in small companies are more attractive at the moment, which is reflected in the returns of the Threadneedle European small cap fund, which returned +4.24% for May. All of our underlying managers, outperformed the MSCI Europe (-0.31%). The Japanese economy seems to be improving, which has translated into gains for the Japanese stockmarket. Economists feel that stockmarkets will continue strengthening as inventory cuts become less severe and as consumer investment spending increases. Our top performing funds, JF Japan and Martin Currie Japan both returned 5.7%, slightly underperforming the Nikkei 225, which gained 5.91%. Stockmarkets in the Pacific Rim have continued to climb on the back of hopes of a global economic recovery and the results were good for our portfolio with Comgest Asia gaining 4.59% for May. 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 to continuing inflation concerns leading to speculation of rising interest rates. 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 Balanced comment April 2002 Tuesday, 21 May 2002 Fund Manager Comment The NIBIIS International Balanced Fund was up 2.56% for the month, while its Weighted Benchmark gained 2.47%. April was a very challenging month for holders of U.S. equities. Stock markets declined sharply on the back of negative news flowing from both economic and corporate sectors with technology continuing to lead declines. During April, the NASDAQ Composite Index and S&P 500 Index lost 8.51% and 6.06%, respectively and at the same time we saw a sharp weakening of the USD. The fund manager has been working on re-positioning the US bloc and are very happy with the outcome. Not one of our underlying US funds underperformed their respective benchmarks and our most recent investment into Fidelity American has proved to be beneficial, as it was the top performing fund in this bloc, outperforming the S&P 500 index by nearly 7.5 %. The fund managers believed that the bull-run in Asia could continue for some time. At a domestic level, many restructuring changes are underway, which should make many individual companies more profitable, in turn driving investor sentiment towards investing in these markets. This region outperformed the US, UK and continental Europe for April as confidence returned to the markets. The Japanese stock market had mixed economic reports during April, but provided enough positives to take the market higher. Our top performing fund within the Asian block was the JP Morgan Fleming Japanese Fund (+5.54%), which slightly underperforming its benchmark the MSCI Japan (+5.82%). JP Morgan Fleming Asia was disappointing losing 0.71%. Even though the performance for April was slightly disappointing we are however content with this bloc as it has given the fund good consistent performance over the past few months . Recent indicators pointed to signs of stabilisation of economic growth across the European and UK regions. European stock markets generally followed the US lead downward with technology in particular feeling the effects of declines across the Atlantic. We have had good performance from this bloc over the past few months, with great outperformance from Threadneedle Smaller Co.’s this month (+4.41%) bringing their YTD to an impressive +12.50%. 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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