fund manager monthly report october 2013 · october 2013 investments. aberdeen asset management...

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F U N D M A N A G E R M O N T H L Y R E P O R T

Fund Manager Monthly ReportOctober 2013

I N V E S T M E N T S

Aberdeen Asset Management (Asia) Far East 6 Hugh Young

• In October, the fund rose by 4.25% in sterling pounds terms, outperforming the FTSE World – Asia Pacific Index that gained 3.05%.

• Asian equities rose in October amid signs of resilience in some regional economies. Markets also gained from improving global risk appetite following the last-minute deal to reopen the US government and suspend the debt ceiling.

Artemis Investment Management UK & International Income 6 Adrian Frost & Adrian Gosden

• In October, the US Federal government returned to work and the stock markets rose.

• We continued to make small changes to the portfolio in October, favouring Natural Resources and Banks.

Artisan Global Managed & Global Unit Trust 7 Dan O’Keefe and David Samra

• Equity markets around the world continued to rally in October, with strong gains in every major market except Japan.

• October also marked the beginning of corporate earnings season. So far, the results have been a mixed bag and we see little in the business fundamentals to justify the current state of euphoria.

AXA Framlington AXA Framlington Managed & 7 Richard Peirson Balanced Managed Unit Trust

• Economic data was generally positive and all of the major equity markets made progress, except Japan which marked time following previous strength

• The most recent economic data from the US has been surprisingly strong, despite the impact of the recent Government shut down.

AXA Framlington Diversified Income & 8 George Luckraft Allshare Income Unit Trust

• Equity markets were strong in October with the All Share Index rising by more than 4%. The portfolio slightly lagged this rise with falls in IQE and iEnergizer Ltd being the main culprits.

• New purchases were made in DP Aircraft and *8 Solar. Both offer high prospective yields. The former leases the two Boeing 787’s to Norwegian Airlines.

MANAGER FUND PAGE

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Babson Capital International Corporate Bond 8 Zak Summerscale

• The Fund continued on the year’s strong performance in October. Market confidence returned as US Congress finally agreed on a Bill to reopen the Government.

• New issuance volumes eased slightly from the record levels seen in September but remained firm.

BlackRock Alternative Assets 9 Market Advantage Team

• Broad equity and bond markets rose again in October despite the US government shutdown.

• The Fund delivered positive returns in October. Most asset classes held in the portfolio delivered positive contributions during the month as markets rose.

BlackRock UK Absolute Return 9 Nigel Ridge

• Equities rallied strongly in the month and further boosted year to date returns after the much needed compromise to the US Debt Ceiling helped push Central Bank decision-making into next year.

• The Fund added 1.6% net of fees in October. Alpha from naked long positions outweighed the naked short book losses while the pair book also contributed positively in October.

BlackRock Global Equity 10 Nimish Patel & Eleanor de Freitas

• Broad equity and bond markets rose again in October despite the US government shutdown, as weaker economic data in the US and Europe fuelled expectations of a continuation of monetary easing across developed nations, driving asset prices higher.

• The MSCI All Country World Index gained 4.02% in US Dollar terms and every regional index posted positive returns for the second month in a row. In comparison, the equal weighted portfolio strategy gained 4.33% during October.

Edgepoint Global Equity 10 Tye Bousada & Geoff MacDonald

• Global equity markets rebounded in October. Although economic data in Europe and the U.S. was slightly weaker, the delay in the slowing of the U.S. Federal Reserve’s asset purchase program and a generally positive U.S. company earnings season boosted equity markets.

• Merit Medical Systems Inc. and Alere Inc. were among the companies that reported very strong third-quarter earnings and as a result contributed significantly to our performance.

First State Investments (UK) Global Emerging Markets 10 Jonathan Asante

• Emerging markets rose in October seemingly on the notion that policy makers are prepared to underwrite many types of risk taking with unlimited amounts of printed money.

• At a stock level, Tata Consultancy (India: Information Technology) climbed as it delivered good results and Bank Pekao (Poland: Financials) rose as the company’s dividend looked increasingly secure.

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First State Investments (UK) Worldwide Opportunities 11 Jonathan Asante

• In the long-term it will be the ability of global demand to grow sustainably and our companies to benefit from this growth that will determine their value to our clients.

• The scope for high inflation which requires even higher interest rates as the cure remains a serious medium-term risk.

Invesco Perpetual Invesco Perpetual Managed & 11Neil Woodford (Lead Manager) Strategic Managed Unit Trust

• October’s impressive total return of 4.3% for the FTSE All-Share took the index to a level just below its previous twelve month peak recorded on 22 May.

• Equity markets globally had a strong month as a result of the ending of the US government shutdown, the raising of the allowable limit on US government debt and the report that China’s manufacturing was stronger than expected.

Invesco Perpetual Income Distribution, UK Equity & 13 Neil Woodford (Lead Manager) UK High Income Unit Trust

• The fund’s value increased by 2.9% in October, compared with the FTSE All-Share index, which rose by 4.3%.

• October’s continued rise by the FTSE All-Share took the index to a level just below its twelve month peak back in May.

Invesco Perpetual Corporate Bond 14 Paul Read & Paul Causer

• High yield bond markets performed strongly in October, benefitting from an increase in investor risk appetite.

• In trading during the month we bought BPCE Global 5.7% (bank), Caixa Bank 5.0% (bank) and America Movil 6.375% (telecom). We sold our holding in Nexan 5.750% (manufacturing).

Invesco Perpetual Global Equity Income 15 Nick Mustoe

• Global equity markets rose in October with the likelihood of monetary policy in the US remaining looser for longer.

• During October we increased our exposure to Baxter International after the share price pulled back on concerns about the impact of a competitor.

J O Hambro UK & General Progressive 15 John Wood

• The prevailing mood in asset markets is very reminiscent of 1999 and 2007. ‘Risk on’ is the new buzzword.

• This is interpreted to mean buying the riskiest assets at highly inflated prices to take advantage of the price inflation that comes from the latest fool joining the party in ‘the great rotation’.

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Loomis Sayles Investment Grade Corporate Bond 16 Ken Buntrock

• For the quarter, the portfolio returned 1.36% compared to 1.30% for the Benchmark.

• The outperformance for the period can be attributed to security selections and sector allocation decisions.

Majedie UK Growth 16 James de Uphaugh

• During October, the Fund returned +4.5% against +4.3% for the FTSE All-Share index.• During the reporting period, the domestic market was buoyed by further signs of progress

for the UK economy, with the Markit PMI data for the dominant services sector having its strongest growth quarter since 1997.

Oldfield Partners High Octane 17 Richard Oldfield

• It begins to be disturbing when markets treat not only good news as good news but bad news as good news – the latter in the form of slightly disappointing US employment figures.

• The best performers in the month were Hewlett-Packard (+16%), also one of the strongest performers this year although faltering in the third quarter; ING (+12%), ENI (+10%), BP (+11%), and Vivendi (+10%).

Orchard Street Property 17 Chris Bartram

• Life & Pensions: The portfolio valuation was up 0.45% month on month and there have been no tenant insolvencies.

• Unit Trust: The portfolio valuation as at 31st October 2013 was up 0.75% month on month.

RWC Partners Equity Income 18 Nick Purves

• The US has once again provided the focal point for markets. This time it was the turn of politicians who brought about the first government shutdown since 1996 and dragged the debt ceiling debate out.

• Markets have got past a lot of potentially troubling issues including the German elections, tapering and the debt ceiling without a scratch. It may be that we can now sit back and enjoy the Santa rally into the New Year although we are nervous of the fact that stock market valuations are full.

Sands Capital Global Equity 19 David Levanson & Sunil Thakor

• For October, Amazon.com, Google, and CP All were the top contributors to relative performance. Google’s most recently reported quarterly results were strong.

• BioMarin Pharmaceutical, Regeneron Pharmaceuticals and ASML Holding were the largest detractors from relative performance in October.

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Schroder Investment Management Schroder Managed & 19 Nick Kirrage and Kevin Murphy Managed Growth Unit Trust

• Global equity markets moved higher in October, helped by the US government’s deal on its debt ceiling, speculation that the Federal Reserve (Fed) would maintain quantitative easing for longer than expected and stronger macroeconomic data from China.

• The Fund’s equities all delivered positive returns in October. Returns from UK and US equities were similar in absolute terms and outperformed their respective benchmarks.

SW Mitchell Capital Continental European, Greater European & 20 Stuart Mitchell Greater European Progressive Unit Trust

• We remain very confident on the outlook for European equities. As we have written many times previously, we believe that the opportunity to invest in more domestically orientated companies is particularly striking.

• More importantly, however, our firm belief has been – and remains – that the Eurozone economies are both fiscally stronger, and more business competitive, than their Anglo-Saxon counterparts.

Tweedy, Browne Company Global Equity 20Will Browne, John Spears, Robert Wyckoff & Thomas Shrager

• Global equity markets gained upward momentum in October as the U.S. reached a temporary compromise on its debt issue, and the Federal Reserve apparently backed away from the possibility of near term “tapering.”

• The best performers included financial and industrial holdings such as National Bank of Canada, Zurich Insurance Group, ABB, Siemens, and Akzo Nobel.

Wellington Gilts 21 Haluk Soykan and Paul Grainger

• Gilts activity was relatively muted in October, although there was a modest rally over the course of the month.

• For the month of October the Portfolio was flat against the spliced benchmark, both returning 0.43%.

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Aberdeen Asset Management (Asia) – Hugh YoungFar East

In October, the fund rose by 4.25% in sterling pounds terms, outperforming the FTSE World - Asia Pacific Index that gained 3.05%. Asset allocation was the main contributor, and stock selection also added to relative performance.

Asian equities rose in October amid signs of resilience in some regional economies. Markets also gained from improving global risk appetite following the last-minute deal to reopen the US government and suspend the debt ceiling.

Third-quarter GDP rose 7.8% in China, reversing the slowdown in previous quarters. Data was also upbeat in Singapore and Korea, but Taiwan’s expansion was hampered by sluggish exports.

India’s manufacturing sector contracted further as output and new orders declined. India raised interest rates to target inflation, while Singapore will allow its currency to appreciate gradually. Sri Lanka cut rates to lift growth.

In Japan, Prime Minister Abe hiked the consumption tax and proposed a new stimulus package to cushion its impact.

Malaysia will implement a 6% goods and services tax in 2015 to tame the widening deficit. The Thai senate approved a bill to borrow two trillion baht to fund infrastructure projects.

There were no major changes to the portfolio in October.

Artemis Investment Management – Adrian Frost & Adrian GosdenUK & International Income

In October, the US Federal government returned to work and the stock markets rose. On balance, the economic news flow from China was a little better and the US was a little worse. However, the market has been very forgiving of poor news seen in the recent reporting season.

We continued to make small changes to the portfolio in October, favouring Natural Resources and Banks. In other sectors, we have been taking profits when valuations have looked stretched. We added Glencore to the portfolio, which gives us a more diversified commodity exposure when compared to Rio Tinto or BHP Billiton, and we expect best in class capital discipline to find favour with investors. Another notable addition to existing holdings was BP, which shares a theme in that it seems to acknowledge that rationalising and rationing its capital employed is likely to be of more benefit to shareholders than size for the sake of size. The marked underperformance of many mega cap stocks, together with their modest valuation, is causing a select few to think and act more radically.

Worthy of note is that the political will to reduce energy bills has created huge uncertainty for our two utility companies SSE and Centrica both of which underperformed.

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Artisan – Dan O’Keefe & David SamraGlobal Managed & Global Unit Trust

Equity markets around the world continued to rally in October, with strong gains in every major market except Japan (all returns local). There was particular strength in the euro countries, which rose 5.7% as the hopes for a recovery persist. The laggards have now become the leaders, with Italy, Greece and Spain up 11.5%, 15.8% and 8.8% respectively.

October also marked the beginning of corporate earnings season. So far, the results have been a mixed bag and we see little in the business fundamentals to justify the current state of euphoria. Despite this, nearly 50% of the investments in the portfolio increased over 5% during the month.

The top drivers of returns this month were internet search company Google, financial services company ING and medical technology company Medtronic. Google increased 18%, ING rose 12% and Medtronic was up 8%. ING and Medtronic are good examples of the overall market optimism, as they both performed very well during the month on little meaningful or new company specific news. Google was up due to good reported earnings – but the stock price reaction was well in excess of our assessment of the improvement in business fundamentals.

The largest detractor from performance during the month was Flextronics. The share price of Flextronics, a Singapore-based contract manufacturing business, fell 13% after the company reduced its outlook for future earnings due to customers pushing back orders.

There were no material purchases during the month. We exited our investments in Hasbro and Parker Hannifin, both of which reached our target price.

As we have said in prior months, we believe that stocks are mostly fairly valued. While our team is busy scouring the globe for attractive investments, our cash levels remain elevated and we continue to be cautious about valuations.

AXA Framlington – Richard PeirsonAXA Framlington Managed & Balanced Managed Unit Trust

Economic data was generally positive and all of the major equity markets made progress, except Japan which marked time following previous strength. Sterling weakened by 1.2% on a trade weighted basis which helped returns from overseas assets. In the UK, life insurance was the strongest area, with Aviva and Prudential particularly strong, oil & gas benefitted from BP winning a court case related to Gulf of Mexico compensation and strength in the house builders boosted the household goods sector. Banks were the weakest area due to continuing worries about higher regulatory capital requirements.

October was a quiet month in terms of activity. In the UK we made a new investment in Rolls Royce whose shares had underperformed over the previous 6 months due to concerns in some quarters about accounting for TotalCare-related cash flows. We anticipate significant Trent engine deliveries over the next few years and don’t share the accounting concerns, indeed we consider the TotalCare business model particularly attractive. The shares looked cheaply rated for a leading aerospace company, on a 2014 PER of only15x. In Japan we sold Bridgestone, which had performed very well, because they are poised to expand production rapidly which could lead to pressure on prices. The Fund performance was good with significant outperformance in UK, US and Japanese equities.

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The most recent economic data from the US has been surprisingly strong, despite the impact of the recent Government shut down. This has revived concerns that tapering of QE(quantitative easing) might be on the agenda again. This has un-nerved the bond markets but been well absorbed by equities. Recent company results have been mixed but current forecasts need to be achieved for markets to make progress, for there is little scope for a further re-rating of equities. Government bonds still look expensive and we remain underweight. In addition, the overseas bonds were hedged back into sterling at the beginning of November.

AXA Framlington – George LuckraftDiversified Income & Allshare Income Unit Trust

Equity markets were strong in October with the All Share Index rising by more than 4%. The portfolio slightly lagged this rise with falls in IQE and iEnergizer Ltd being the main culprits. The former saw some destocking among their client base while the latter’s shares fell due to a large stock overhang. This has now been cleared.

New purchases were made in DP Aircraft and *8 Solar. Both offer high prospective yields. The former leases the two Boeing 787’s to Norwegian Airlines. The latter owns and operates solar farms in the UK. During the month the long standing holding of Victrex was sold due to concerns about greater competition.

The pickup in pace of economic recovery in the UK raises the prospect that the first rise in interest rates might be sooner than previously expected. For this to occur unemployment will need to fall significantly. Such a background should be a good one for many company’s profitability.

Babson Capital – Zak SummerscaleInternational Corporate Bond

The Fund continued on the year’s strong performance in October. Market confidence returned as US Congress finally agreed on a Bill to reopen the Government through to 15th January 2014 and extended the debt ceiling through to 7th February 2014. Furthermore, any anticipated tapering of Quantitative Easing by the US Federal Reserve shifted into 2014, which pushed the likelihood of a rate increase further into the future, thus providing a boost to high yield assets.

New issuance volumes eased slightly from the record levels seen in September but remained firm. Flows into high yield have been strong since the short term expectation for higher rates subsided, and October saw this trend continue. Both the U.S. and European high yield bond markets performed well during the month, with the U.S. index slightly ahead of Europe.

The fund’s top contributors during this period were First Data Corporation, a global data processing company; Liberty Global, a leading international cable company; and New Look, a British high street fashion retailer. Detractors in October included RPG Partners; a Czech property management firm and Toys R Us; a dedicated toy and juvenile-products retailer.

Going forward, we expect default rates to remain below their long term averages, with debt financing markets remaining accommodative and companies being focused on maintaining good liquidity. We believe the desire of banks to shrink their balance sheets, combined with low interest rates will continue to support high yield bond issuance, thus providing opportunities for us to add attractive holdings to the International Corporate Bond Fund that will continue to be accretive to risk-adjusted returns.

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BlackRock – Market Advantage TeamAlternative Assets

Broad equity and bond markets rose again in October despite the US government shutdown, as weaker economic data in the US and Europe fuelled expectations of a continuation of monetary easing across developed nations, driving asset prices higher. In the US, the key release was weaker than expected employment data. Consumer confidence also fell substantially during the month, but manufacturing and industrial production data improved. In Europe, manufacturing and services indicators showed signs of deterioration, but consumer and economic sentiment indicators were more positive. The European unemployment rate disappointed, remaining unchanged at 12.2%. The UK continues to show signs of economic strength, with data during October beating expectations. Highlights during the month were particularly strong manufacturing and construction numbers and resilient GDP growth. In emerging markets, data continued to surpass market expectations, with improving economic indicators and strong GDP prints from China and Korea driving further gains in debt and equity markets.

The Fund delivered positive returns in October. Most asset classes held in the portfolio delivered positive contributions during the month as markets rose. Improving data from emerging markets drove strong returns from emerging market infrastructure and sovereign debt exposures (S&P $ Emerging Markets Infrastructure Index and JPMorgan $ EMBI Global Core Index +5.4% and +3.7% respectively). Equity sector exposures once again delivered gains as risk assets rose (S&P Global Water, Global Clean Energy and Global Timber & Forestry TR Indices +4.5%, +4.1% and +3.1% respectively). Commodities were the only asset class to deliver negative returns during the month (DJ UBS Commodity TR Index -0.7%).

BlackRock – Nigel RidgeUK Absolute Return

Equities rallied strongly in the month and further boosted year to date returns after the much needed compromise to the US Debt Ceiling helped push Central Bank decision-making into next year. In the UK improving fundamentals bring forward the timeline for policy normalisation while over in Europe, falling inflation and rising unemployment forced the ECB to take interest rates down to just 0.25% early in November.

The Fund added 1.6% net of fees in October. Alpha from naked long positions outweighed the naked short book losses while the pair book also contributed positively in October. Financials produced the largest contribution to performance while industrials also added decent gains as stock selection behind a low net exposure added alpha in this sector. Positioning in consumer goods stocks was the biggest detractor at the sector level. Carphone Warehouse was the largest positive contributor as it continued to perform well operationally. The shares were also aided by the company’s potential index inclusion driving demand. Short positions in defensive stocks with a domestic focus headed the list of detractors with strong like-for-like retail numbers in the UK reflecting the bounce in consumer confidence.

Net exposure has been reduced to 13% whilst our gross exposure has been increased to 131% on increased conviction in existing holdings and the introduction of new ideas. Reed Elsevier (consumer services) has been added to the Fund given the earnings growth potential in the professional solutions business. We continue to hold a net long in financials given the prolonged accommodative policy support. Equities more broadly however are less likely to repeat the kind of re-ratings that have underpinned share prices since the 2009 market lows. Caution is growing on current equity valuation levels given the recent and rapid leg of the rally and the limited strength of the economic recovery globally. Improving sentiment continues to be driven by the consumer while corporate confidence remains subdued reflecting restraint by company management on implementing long term spending plans.

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BlackRock – Nimish Patel & Eleanor de FreitasGlobal Equity

Broad equity and bond markets rose again in October despite the US government shutdown, as weaker economic data in the US and Europe fuelled expectations of a continuation of monetary easing across developed nations, driving asset prices higher. In the US, the key release was weaker than expected employment data. Consumer confidence also fell substantially during the month, but manufacturing and industrial production data improved. In Europe, manufacturing and services indicators showed signs of deterioration, but consumer and economic sentiment indicators were more positive. The European unemployment rate disappointed, remaining unchanged during October at 12.2%. The UK continues to show signs of economic strength, with data during October generally beating expectations. Highlights during October were particularly strong manufacturing and construction numbers and resilient GDP growth. In emerging markets, data continued to surpass market expectations, with improving economic indicators and strong GDP prints from China and Korea driving further gains in debt and equity markets.

The MSCI All Country World Index gained 4.02% in US Dollar terms and every regional index posted positive returns for the second month in a row. In comparison, the equal weighted portfolio strategy gained 4.33% during October.

Edgepoint – Tye Bousada & Geoff MacDonaldGlobal Equity

Global equity markets rebounded in October. Although economic data in Europe and the U.S. was slightly weaker, the delay in the slowing of the U.S. Federal Reserve’s asset purchase program and a generally positive U.S. company earnings season boosted equity markets.

Merit Medical Systems Inc. and Alere Inc. were among the companies that reported very strong third-quarter earnings and as a result contributed significantly to our performance.

Merit posted the largest return in our portfolio. The company is a leading manufacturer of small devices used primarily in cardiology, radiology and endoscopy. It posted record revenues, driven by core product growth and lower expenses. Merit’s top line business continues to grow and we believe it can increase future earnings.

Alere was also a strong performer. Alere sells a variety of diagnostic tests for infectious diseases, pregnancy and cardiology, among others. The company is an example of a business whose future could look much different than its past. In addition to revenue growth, Alere also significantly reduced operating expenses, showing its serious commitment to restructuring. It’s launching several new infectious disease diagnostic products in the near term that we think have the potential to generate organic growth and significant amounts of free cash.

First State Investments (UK) – Jonathan AsanteGlobal Emerging Markets

Emerging markets rose in October seemingly on the notion that policy makers are prepared to underwrite many types of risk taking with unlimited amounts of printed money (quantitative easing). At a sector level, Financials and Information Technology gained the most, while Consumer Staples and Telecom Services lagged. At a stock level, Tata Consultancy (India: Information Technology) climbed as it delivered good results and Bank

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Pekao (Poland: Financials) rose as the company’s dividend looked increasingly secure. Unilever (UK: Consumer Staples) gained on strong execution by the business and a preference in the market for defensive stocks with sustainable yields. On the negative side, Tullow Oil (UK: Energy) was weak following the suspension of a project in Kenya and Cencosud (Chile: Consumer Staples) declined on concerns about its US dollar debt. Coca-Cola Hellenic (UK: Consumer Staples) fell following disappointing results principally caused by weak sales in its European operations.

First State Investments (UK) – Jonathan AsanteWorldwide Opportunities

World markets rose in October as investors became increasingly confident about the extension of global money printing (quantitative easing). The idea that investors should not ‘fight the Fed’ has been present for well over a decade and has often been the prevailing view at equity market peaks. The biggest risk in the last 15 years to clients’ wealth has been the busts overseen by central banks which are supposedly protecting them.

We do not invest clients’ money on the basis that central banks will protect them. Rather than fighting (or not) the Fed, we live in the knowledge of the devastating effects on society if another boom is encouraged which ends in a bust. There are already quite a few signs that this is happening to asset prices including equities. Can a financial system that makes the same mistake three times in only a few years really be worth keeping?

In the long-term it will be the ability of global demand to grow sustainably and our companies to benefit from this growth that will determine their value to our clients. Money printing and its many associated risks complicates the picture for people running companies as it tends to reduce growth and raise uncertainty over the longer term.

The scope for high inflation which requires even higher interest rates as the cure remains a serious medium-term risk. Market traders or momentum-driven investors might then rationally spend their time trying to second guess the minds of central bankers, but long-term owners of companies should focus their efforts elsewhere.

Invesco Perpetual – Neil Woodford (Lead Manager)Invesco Perpetual Managed & Strategic Managed Unit Trust

United KingdomOctober’s impressive total return of 4.3% for the FTSE All-Share took the index to a level just below its previous twelve month peak recorded on 22 May. Again, the key driver for this came from across the Atlantic, where the US Federal Reserve did not start to “taper” its monetary stimulus programme and where the opposing political parties reached a compromise on the permitted total for US borrowing.

The UK saw some mixed economic data released over the month. The August balance of trade figures recorded the deficit at a persistently high £3.3bn – which compares with UK’s average trade deficit for the first half of the year of £2bn. The industrial production figures were also disappointing - after a rise of 1.6% over the previous two months, industrial production fell by 1.1% in August. By contrast, the Office for National Statistics announced that UK economic output rose by 0.8% in Q3, with a “fairly strong” performance across all sectors. The data builds on a 0.7% GDP rise in Q2 and is the best quarterly performance since 2010. The UK inflation rate meanwhile remained unchanged at 2.7% in September.

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It was a busy month for corporate news, which also painted a fairly mixed picture. Reckitt Benckiser pleased the stock market by lifting its full-year revenue guidance slightly following a strong third quarter and also by announcing a review of the future of its pharmaceutical business. BT Group’s share price has performed consistently well of late, and this continued with news that its recently introduced BT Sport package had made a ‘confident start’ and of a 13% hike in the interim dividend.

Imperial Tobacco and British American Tobacco received a slightly better outcome than feared from the publication of the EU Tobacco products directive, including the news that e-cigarettes are not to be regulated as medicines.

GlobalEquity markets globally had a strong month as a result of the ending of the US government shutdown, the raising of the allowable limit on US government debt and the report that China’s manufacturing was stronger than expected. These positive events coming so soon after the Federal Reserve had decided to continue with the same high level of monthly asset purchases helped to generate demand for risk assets.

Europe reported positive data. Eurozone CPI inflation fell from 1.1% to 0.7%, well below the consensus expectation for an unchanged level. The headline rate is now at its lowest level since late 2009. EC’s (European Commission) Consumer Confidence Index rose from -14.9 in September to -14.5 in October, the strongest reading since July 2011 and Spain finally reported a rise in quarterly GDP, albeit at a modest rate of 0.1%. This therefore ended their two year recession.

Emerging equity markets continued with their recovery and collectively reported the best return over the month. No country or sector across the region recorded a loss and Morocco, Czech Republic and India were the top performing equity markets in US dollar terms.

Despite strong performances from equity markets there was no obvious selling in the bond markets of the developed world. The US and UK 10 year yield ended October hardly changed with yields at 2.55% and 2.62% respectively. Other fixed interest markets did reflect the general risk appetite as peripheral Eurozone bonds performed well, with Italian government bonds returning 4.0% and Portuguese 5.4% (in sterling terms). Such stability within the fixed interest world reflects the support from government asset purchase programmes and a scepticism about the strength of economic recovery.

Fixed InterestBond yields fell in October and credit spreads tightened. Markets were boosted by signs that the reduction of Federal Reserve (Fed) quantitative easing (QE) will be delayed and by supportive economic data.

Minutes from the September meeting of the Federal Open Market Committee, when it was decided, against market expectations, not to begin tapering QE, reveal that the decision was a “close call”, prompted by concerns over weakening economic data and higher longer-term interest rates. However, this meeting took place before the Federal government shutdown. The impact that this could have, through weaker activity, lower consumer confidence and uncertainty due to delays in the release of economic data, could push tapering further out.

Employment data remains an important element in Fed thinking. Non-farm payroll growth was a below-consensus 148,000 in September, extending a recent run of lower-than-expected growth. Other recent employment data has also been relatively weak. US inflation has fallen in recent months, with the annual rise in CPI just 1.2% in September, down from 1.5% in August and 2% in July. This has also encouraged expectations that the Fed will maintain its asset purchase programme for longer. Elsewhere, data suggest solid economic performance. Annual growth in industrial production was 3.2% in September compared to 2.8% in August. The ISM non-

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manufacturing index of business activity remains in strongly positive territory. Consumer confidence dipped during the government shutdown but appears already to be recovering. Retail sales growth remained solid.

Economic data in the eurozone has been mixed in recent weeks, following a period of improvement. Business confidence at the eurozone level rose in October but the German Ifo survey dipped. Eurozone unemployment rose modestly in September and stands at a record high of 12.2%. Data was stronger in the UK, where positive provisional data on third quarter GDP growth has been backed-up by further evidence of rising activity in the CIPS/Markit activity indices.

US Treasury yields rose during the shutdown but ended the month lower, reflecting the expected delay to Fed tapering. The 10 year yield closed October on 2.55%, down 6 basis points (bps). The 10 year Gilt yield fell 10bps to 2.62%. According to data from Merrill Lynch, Gilts had a total return of 0.7%. Other bond market returns suggest a greater appetite for risk amongst investors. Peripheral eurozone sovereign bonds performed well, with Italian government bonds returning 4.0% and Portuguese 5.4% (in sterling terms, aided by euro appreciation against sterling of 1.4%). European high yield bonds returned 3.3%, their spread over Bunds tightening 33bps to 4.22%. Sterling investment grade corporate bonds returned 2.0%. Financials outperformed modestly, returning 2.2% compared to 1.9% for non-financials.

Invesco Perpetual – Neil WoodfordIncome Distribution, UK Equity & UK High Income Unit Trust

Market CommentaryOctober’s continued rise by the FTSE All-Share took the index to a level just below its twelve month peak back in May. Again, the key driver for this came from across the Atlantic, where the US Federal Reserve did not start to taper its monetary stimulus programme and where the opposing political parties reached a compromise on the permitted total for US borrowing. Meanwhile UK economic output rose by 0.8% in Q3 - its best quarterly performance since 2010.

Fund Strategy and OutlookThe UK stock market’s positive reaction to the news of no tapering in the US further confirmed the extent to which its upward progress has been driven by quantitative easing and how any bad news on the US economy is therefore seen as good news for the market. The withdrawal of extraordinary monetary policy in the US is, however, ultimately inevitable. We expect the pace of this to be gradual, but we remain concerned about its near-term implications for our asset class. This is particularly the case after the UK stock market’s very rapid recent rise, which has left equities looking less compellingly good value than they did a year ago - and therefore more vulnerable to any sudden shocks or negative news flow. It is even more difficult than usual to predict the path that the market will take over the next few months, but the fund is positioned with a view to delivering an attractive positive return over more sensible, longer time horizons. We would caution, however, that returns over the next three years are likely to be somewhat lower than those of the last three years, purely as a consequence of the higher valuations now seen in our market.

Fund PerformanceThe fund’s value increased by 2.9% in October, compared with the FTSE All-Share index, which rose by 4.3%. The fund’s delivery of positive returns for the month and strong rise year to date is very pleasing. It supports our belief that the stock market would ultimately come to share our view of the attractiveness of companies able to deliver sustainable growth in earnings and, particularly, dividends against a challenging economic backdrop.

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Notable again here last month was the performance of the holding in BT Group. The company’s interim results were accompanied by a 13% hike in the dividend while the company confirmed that its recently introduced BT Sport package had made a “confident start”. The holding in Reckitt Benckiser was another to perform well. The company beat third-quarter sales forecasts and nudged up its full year outlook, signalling it was successfully navigating the slowdown in emerging markets that has hurt rival consumer products groups such as Unilever. Reckitt Benckiser further pleased investors by announcing a strategic review of its pharmaceuticals business – which if sold, could fetch over £2bn - providing further evidence that this is a company with a strong focus on maximising shareholder value. Imperial Innovations, which invests in and commercialises intellectual property developed in selected UK universities, again performed strongly over the month.

The company’s full year results were accompanied by the statement that a number of its leading portfolio companies were approaching value realisation events such as trade sale or IPO and that the company was confident in the prospects for future value uplifts in its portfolio. The holding in Chemring, however, fell sharply as the company announced that it faced an £8m profit shortfall in the current financial year and would also miss 2014 forecasts. The company blamed the impact on the temporary closure of the UK Defence Contract Management Agency and other US government offices on its North American business. It also said it was taking longer than hoped to resolve “quality and production issues” while revenue had additionally been hit by adverse swings in the sterling/dollar exchange rate. Meanwhile the on-going political debate over electricity prices had a further negative impact on the share prices of SSE, Centrica and Drax.

Invesco Perpetual – Paul Read & Paul CauserCorporate Bond

High yield bond markets performed strongly in October, benefitting from an increase in investor risk appetite. These markets were boosted by signs that the reduction of Federal Reserve (Fed) quantitative easing (QE) could be delayed by the impact of the US federal government shutdown and by weaker US employment and inflation data. In Europe, the rate of inflation also moved lower and the eurozone Economic Sentiment Indicator rose in October, suggesting that growth remains positive going into the final quarter of the year. According to data from Merrill Lynch, European high yield bonds had a total return of 3.3% (in sterling terms, aided by euro appreciation against sterling of 1.4%), their aggregate spread over Bunds tightening 33bps to 4.22%. By comparison, euro investment grade corporate bonds returned 2.4%. Subordinated bank capital was one of the strongest areas of the corporate debt market. The primary market was active in October, with Barclays estimating a total £5.2bn in new European high yield supply across currencies, up from £3.8bn in October 2012. Year-to-date, issuance is up 45% on the same point last year.

We favour higher credit quality high yield bond issuers as well as higher yielding investment grade names. High yield bond yields are low by historical standards but they remain relatively high compared to the yields available on core government bonds, like UK Gilts and German Bunds, and the highest credit quality corporates. We believe we can still find opportunities, most notably in banks and other financials, where we think aggregate yields continue to offer value. In our view, rising capital levels, ongoing structural reform and the implementation of new, more conservative banking sector regulations should be supportive of subordinated bank debt for many years.

In trading during the month we bought BPCE Global 5.7% (bank), Caixa Bank 5.0% (bank) and America Movil 6.375% (telecom). We sold our holding in Nexan 5.750% (manufacturing).

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Invesco Perpetual – Nick MustoeGlobal Equity Income

Market CommentaryGlobal equity markets rose in October with the likelihood of monetary policy in the US remaining looser for longer. The resolution of the US government shutdown and expectations of a reduction in the pace of its asset purchase programme being pushed further into 2014, all served to support emerging market equities in particular. The winners of the most recent rebound included some of the hardest hit since the talk of tapering began in May. European equity markets also saw strong gains, boosted by Q2 2013 GDP figures which revealed growth in the Eurozone for the first time in six quarters. Meanwhile, the Japanese equity market moved sideways to marginally down resulting partly from weakness in domestic consumption and a fall in export figures to China over the month.

Fund StrategyOur strategy is to look for companies with attractive valuations that we believe can sustain profit margins and deliver returns through the economic cycle and which offer growing and sustainable dividends. We seek companies that we believe are high quality, with attractive franchises, and balance sheets with a conservative level of debt.

During October we increased our exposure to Baxter International after the share price pulled back on concerns about the impact of a competitor. We also increased exposure to Nordea which we consider to be a very high quality European bank. We sold our holding in Time Warner Cable on valuation grounds.

J O Hambro – John WoodUK & General Progressive

The prevailing mood in asset markets is very reminiscent of 1999 and 2007. ‘Risk on’ is the new buzzword. This is interpreted to mean buying the riskiest assets at highly inflated prices to take advantage of the price inflation that comes from the latest fool joining the party in ‘the great rotation’. This behaviour is, of course, championed by the politicians and the world’s central banks.

We are surprised at the speed with which casino capitalism has returned. However, we should not be. Jeremy Grantham of GMO, writing in late 2008 about the collapse in financial markets earlier in the year, captured the intrinsic short-termism and amnesia that prevails in this industry rather nicely: “We will learn an enormous amount in a very short time, quite a bit in the medium term and absolutely nothing in the long term. That would be the historical precedent”.

What is our response to this at a time when others are giving up on low risk investment approaches? Our answer is to reinforce our investment principles. We like to buy predictable and sustainable cash flows that will compound through time so that the intrinsic values of those businesses grow. High quality, high return investments are scarce in a world of artificially manipulated low returns. Our objective is to identify these quality assets and then let time and patience do the hard work.

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Loomis, Sayles – Ken BuntrockInvestment Grade Corporate Bond

For the quarter, the portfolio returned 1.36% compared to 1.30% for the Benchmark, ML Sterling Non-Gilts, 25% cap FINCL, 1-15 yrs Index (Hedged GBP).

The outperformance for the period can be attributed to security selections and sector allocation decisions. Choices within the banking sector added relative value, as did those within communications, life insurance, and capital goods. Underweight allocations to supranational and agency bonds contributed positively as the portfolio continues to benefit from the overweight positioning in corporates, where spreads have tightened since widening in June. Select names in the consumer goods sectors did weigh on relative performance.

At 5.17 years, overall portfolio duration remains closely aligned with that of the Benchmark. Yield curve positioning detracted marginally over the month. We continue to monitor market developments closely along with UK econometrics.

Majedie – James de UphaughUK Growth

During October, the Fund returned +4.5% against +4.3% for the FTSE All-Share index.

During the reporting period, the domestic market was buoyed by further signs of progress for the UK economy, with the Markit PMI data for the dominant services sector having its strongest growth quarter since 1997, albeit from depressed levels. Whilst data such as this is clearly good news, we would advise an element of caution, given the continued disappointing manufacturing reports and with markets at such elevated levels: the FTSE All-Share index is near all time highs, as is the FTSE World index, while the S&P 500 index is at record values too. Investors would be wise also to note the effects of continued weakness in Emerging Market currencies: Unilever’s Q3 results revealed weakness in consumer demand in these areas, as real incomes came under pressure.

In terms of stocks that performed well over the month, Aviva’s drive to refocus on its core business continued to impress investors, with the disposal of its US life assurance business, Aviva USA, for a higher price than originally expected; BP’s announcement of a dividend increase and a breakthrough first judgement in its favour in the Macondo litigation case was also well received and Travis Perkins, a beneficiary of the government’s Help to Buy scheme, announced improved guidance.

Our continued avoidance, as far as possible, of emerging market related stocks meant that not holding the likes of Prudential weighed on performance during the month. Asian markets rallied on the back of the announcement of improving China Growth for Q3, driven by a mini investment stimulus (but note that growth in retail and industrial activity slowed). Meanwhile M&S revealed disappointing clothing sales for Q3 but, as noted in previous reports, our view is that the restructuring programme which is underway is more important in the long term.

In outlook, we are a little more cautious and so have reduced our cyclical holdings in favour of areas of the market on lower valuations and with greater growth prospects, such as Mobile Telecommunications.

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Oldfield Partners – Richard OldfieldHigh Octane

It begins to be disturbing when markets treat not only good news as good news but bad news as good news – the latter in the form of slightly disappointing US employment figures. When markets get into so Panglossian a mood it usually does not bode well. Similarly Panglossian is the view expressed in the most recent Investors Intelligence Survey of Advisory Sentiment. In this survey, all the major investment advisory newsletters in the US are rated bullish, bearish, or “looking for a correction”. Since the writers are in the investment business, there is a marked tendency towards bullishness. But when, as now, the reading is 55% bullish, only 16% bearish, it is at an extreme which in the past has been followed by a down-market, though often for a short time. Given the level of valuation of the US, just how well the US stock market has done and the degree of sanguinity which has crept in, it would not be surprising to see some setback. The Twitter initial public offering is the latest illustration of the mood: the share price immediately leapt to double the price of the offering, and even at the offering price Twitter is one of those companies which has to be valued with a very long spoon, with reference to revenues rather than profits for obvious reasons.

Any trouble in the US would be sure to be reflected in other markets, even if valuations are more respectable elsewhere, as they are. We continue to have a strong emphasis on Japanese companies.

In the month, Japan was the dud, five of the seven worst performing shares being Japanese. The only exception was Hitachi. We continue to see attractive gaps between price and value in these Japanese companies and we hold them for this reason, rather than because of Abenomics. Nonetheless, Abenomics is a welcome catalyst. Mr Abe faces huge obstacles and has been forced to retreat, or at least to postpone, in respect of some of the structural reform components of his third arrow. But so far, so good.

The best performers in the month were Hewlett-Packard (+16%), also one of the strongest performers this year although faltering in the third quarter; ING (+12%), ENI (+10%), BP (+11%), and Vivendi (+10%). ING is making good progress in the sale of its insurance assets which have hitherto depressed the valuation. We expect the company to be able to return capital to shareholders in the next two years as a result, while maintaining satisfactory capital ratios. The share price of BP reacted well to the announcement of an increase in dividend and to restrained plans for capital expenditure. Vivendi announced just after the end of the quarter the sale of its stake in Maroc Telecom to Etilisat for €4.2 billion, more or less in line with the market price and comforting in that it marks a further stage in the transformation of Vivendi to a media and telecom company. Much of this is due to the pressure from Vincent Bolloré, now vice-chairman. SFR, the French telecom business, may be the next to go. The firm retreat from conglomeratitis towards focus on a much smaller company with more attractive businesses, together with the improvement in balance sheet is, we feel, good for the company’s valuation.

Orchard Street – Chris BartramProperty

Life & PensionsThe portfolio valuation was up 0.45% month on month and there have been no tenant insolvencies.

We have completed a new 10 year lease on the second floor at the Pinnacle office building in Crawley at an annual rent of £90,825. The building is now 60% let and as a result of the latest letting the valuation is set to increase by around £500,000.

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We have completed a 4 year lease on unit N1 at Gildersome Spur industrial estate in Leeds. As a result of the recent letting the vacancy rate has reduced to 15.0% which is the lowest since acquisition and the valuation has increased by £455,000 to £18.6m.

In Coventry we have extended Peugeot’s lease of the Stoke Works Office and Industrial Complex to a term in excess of 18 years. The 180,000sq ft property is the UK headquarters of the Peugeot Motor Company PLC and is also home to its technical centre. The new leases benefit from rental increases in line with RPI collared and capped between 2-5% and as a result of this transaction the valuation has increased by 12.7% to £24.8m.

The initial yield on the portfolio is 6.4% compared with 6.3% for IPD and the vacancy rate is 5.2% against 10.2% for IPD.

Unit TrustThe portfolio valuation as at 31st October 2013 was up 0.75% month on month.

There have been no tenant insolvencies.

We have completed the acquisition of Commerce Trade Park in Croydon for £5.2m with an initial yield of 6.2%. The property is a modern trade park consisting of 8 units totalling 32,700sqft and is fully let to seven tenants.

As at 31st October the initial yield within the portfolio was 6.7% compared with 6.3% for IPD. Occupancy remains strong with the vacancy rate at just 0.9% compared with 10.2% for IPD.

RWC Partners – Nick PurvesEquity Income

The US has once again provided the focal point for markets. This time it was the turn of politicians who brought about the first government shutdown since 1996 and dragged the debt ceiling debate out until the last possible moment. However, just in time, Congress managed to set aside their differences and pass a continuing resolution and debt-limit extension through to January 15th and February 7th respectively (so we can go through the whole thing again next year).

One would hope that the experience will stop the same sort of brinksmanship from occurring again, however with a lame duck president and the tea party hovering over the Republicans it seems unlikely. While confidence indicators got hit, and 1 month T-bill yields spiked, equity markets remained stable through the whole event and S&P 500 continues to make intraday highs.

After the Fed backed out of tapering QE last month, despite having geared markets up for it in the preceding 4 months, it seems to have found itself in a difficult position. Macro data has been distorted due to the government shutdown, and there is now no clear consensus as to when tapering may begin.

In the UK the recovery continues to gain momentum with signs that monetary conditions are starting to ease, improving retail sales and an improvement in exports. However there is still a significant gap between actual demand and potential output, so while the economy may be better it is still far from being fixed.

Markets have got past a lot of potentially troubling issues including the German elections, tapering and the debt ceiling without a scratch. It may be that we can now sit back and enjoy the Santa rally into the New Year although we are nervous of the fact that stock market valuations are full and the risks to corporate profits are not insignificant. As a result the Fund remains cautiously positioned.

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The Fund performed in-line with the index. The biggest positive contributors in the month were Legal & General, BSkyB, BT and BP. Legal & General benefited from the rising market. BSkyB reported strong results with revenue, EBITDA and EPS up, the continued growth of average revenue per unit and a further £500m buyback was announced. BT’s results were good with the key driver being BT Retail highlighting a positive from the launch of BT Sports. BP delivered a solid set of results and announced it would be increasing its dividend.

Sands Capital – David Levanson & Sunil ThakorGlobal Equity

As long-term investors in business enterprises, not traders of stocks, Sands Capital does not actively ‘reposition’ the Global Growth Portfolio on an ongoing basis. Instead, we remain focused on the underlying fundamentals and long-term growth prospects of our businesses, not short-term stock price movements.

For October, Amazon.com, Google, and CP All were the top contributors to relative performance. Google’s most recently reported quarterly results were strong. Growth in revenue from the core search business – one of the most important metrics for the company – was particularly impressive. Furthermore, operating margins increased. We remain confident in the company’s long-term prospects and believe it continues to deserve a large weight in the Fund.

BioMarin Pharmaceutical, Regeneron Pharmaceuticals and ASML Holding were the largest detractors from relative performance in October. ASML Holding announced it would be pushing out the delivery of its next-generation EUV production tools, which are expected to become the new standard in the semiconductor fabrication process. Delivery of the tools will be delayed by one quarter, due to supply chain issues. While disappointing, this near-term setback doesn’t impact our long-term investment case. We continue to believe ASML is one of the more compelling technology businesses given the company’s growing competitive advantages and its position at the bottleneck of the semiconductor production process.

Schroder Investment Management – Nick Kirrage and Kevin MurphySchroder Managed & Managed Growth Unit Trust

Global equity markets moved higher in October, helped by the US government’s deal on its debt ceiling, speculation that the Federal Reserve (Fed) would maintain quantitative easing for longer than expected and stronger macroeconomic data from China. The US deal brought 16 days of partial government shutdown to a close – and with it US equities rallied. Expectations that the Fed would keep monetary policy accommodative boosted developing markets, as did strong growth figures from China and encouraging trade data from India. The UK economy showed further signs of improvement, growing 0.8% in the third quarter. Overall, this environment was supportive for both equities and bonds.

The Fund’s equities all delivered positive returns in October. Returns from UK and US equities were similar in absolute terms and outperformed their respective benchmarks. The majority of the UK equity portfolio’s outperformance came from stock selection in the consumer services sector, where Home Retail Group and Darty delivered robust returns. Overall, the Fund’s exposure to bonds was positive in October. Peripheral European government bonds were the strongest performers, with particularly strong returns from Italian government bonds. Core government bonds also delivered positive returns.

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SW Mitchell Capital – Stuart MitchellContinental European, Greater European &

Greater European Progressive Unit Trust

We remain very confident on the outlook for European equities. As we have written many times previously, we believe that the opportunity to invest in more domestically orientated companies is particularly striking. Many of the best quality international growth stocks are now just too expensive, especially considering a possible slow-down in emerging market demand. Many domestic European companies, on the other hand, are trading at discounts to their American equivalents in excess of 50 percent. More importantly, however, our firm belief has been – and remains – that the Eurozone economies are both fiscally stronger, and more business competitive, than their Anglo-Saxon counterparts. One need only look at the modest growth in overall Eurozone government debt over the crisis, or at the German trade account surplus, to appreciate the strength of the region relative to the US and UK.

The main challenge for the Eurozone, of course, remains the trying circumstances facing its periphery. We have always argued that the ‘will’ in Europe to make the Euro project work would ease the process of necessary austerity and reform. We have been very impressed by how well the most challenged countries have managed both to meet Troika targets, as well as to undergo wholesale economic reform. More importantly, it is evident that the Spanish economy is beginning to recover, and surprisingly rapidly too. Critically, buyers for distressed property assets are beginning to appear in some numbers, especially on Spain’s coast. With deposit funding getting cheaper, and lending now more correctly priced, the banking system is clearly moving back towards health.More domestically orientated companies now constitute over half of your portfolio. Most notably, peripheral European companies now represent 25% of our investments.

On a recovery basis, for example, the Spanish property and concession group Sacyr still represents great value. The same holds true for our holdings in Mediaset, Intesa Sanpaolo and Banco Popular.Banks make up 24% of the fund. We still believe that the market has failed to appreciate the benefits of a rapid recovery in financial margins coupled with draconian cost cutting and easing regulatory pressures. We have focused on the strongest retail banking franchises such as BNP and ING where we believe that returns should rather rapidly return to pre-crisis levels.

Tweedy, Browne – Will Browne, John Spears, Robert Wyckoff & Thomas Shrager

Global Equity

Global equity markets gained upward momentum in October as the U.S. reached a temporary compromise on its debt issue, and the Federal Reserve apparently backed away from the possibility of near term “tapering.” The fund finished the month up 4.08% net of fees versus a return of 4.74% for the MSCI World Index.

While virtually all of the holdings were up for the month, the best performers included financial and industrial holdings such as National Bank of Canada, Zurich Insurance Group, ABB, Siemens, and Akzo Nobel. We also had nice returns in Johnson & Johnson, Axel Springer, ENI and Total.

Only two securities produced a modestly negative return, CNP Assurances and Cisco. There were no new positions established, nor were there any complete sales during the month. We did add to our positions in DBS Group, G4S, GlaxoSmithKline, and HSBC. Cash reserves remain at about 15% of total portfolio value, and bargain hunting continues to be challenging.

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The information contained herein represents the views and opinions of our fund managers, and not those necessarily held by St. James’s Place Wealth Management.

The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.Members of the St. James’s Place Partnership represent St. James’s Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority.St. James’s Place UK plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

St. James’s Place UK plc Registered Office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom.Registered in England Number 2628062.

Wellington – Haluk Soykan and Paul GraingerGilts

Gilts activity was relatively muted in October, although there was a modest rally over the course of the month. The shutdown of the US Government meant that we didn’t see much data released by the US, and this has been the main driver of gilt moves over the last couple of months. The Monetary Policy Committee (MPC) unanimously voted to keep policy unchanged this month. In the minutes of the meeting we did see indications that policy tightening could happen sooner than had been anticipated. Strong service sector data in October underlined the strength of the recovery, with Q3 GDP in line with expectations up 0.8% for the quarter.

For the month of October the Portfolio was flat against the spliced benchmark, both returning 0.43%.

The cyclical recovery is gaining momentum and based on most of our leads, there is a high probability the unemployment rate could breach the MPC’s 7% threshold 2 years earlier than the MPC’s forecast. The challenge will be to manage rate hike expectations amid an improving housing dynamic and a consumer credit transmission channel that is operating at a moderate pace. Current cyclical momentum is consistent with higher short-end rates and a flatter curve. In order to see the Bank of England move closer to hiking rates, we will need to see signs of inflation and cost pressures. Nominal wages need to accelerate, which would indicate there is a bigger probability this recovery is sustainable. The current high level of job vacancies suggests that employment, and wage growth, could ensue. Currently, the Bank of England seems to be leaning towards using macro-prudential policies to ensure financial stability amid the cyclical recovery, rather than relying on typical monetary tightening measures, which could risk stifling the economic recovery. The improving dynamic of the domestic economy indicates that the premise for continued low rates and policy stimulus will be challenged at some point.

fund manager monthly report october 2013 · october 2013 investments. aberdeen asset management...

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