Market Commentary as of 9/30/08
The third quarter was a turbulent one for investors, highlighted by significant market moves, historic business combinations, and dramatic actions to increase funding and liquidity. Stock and bond prices lurched in the wake of ongoing news about troubled banks, brokers, government-sponsored enterprises Fannie Mae and Freddie Mac, and the economy. Few sectors were unaffected as stocks, bonds, and commodities all sold off. Investors became more cautious, moving money to low-risk, liquid investments such as Treasury bills and money market funds.
The market distress evoked a multi-pronged response from around the world.US and European regulators arranged acquisitions of weaker firms, and set up new lending facilities for banks and securities firms. The US Federal Reserve doubled its Term Auction Facility to $900 billion. Congress passed a $700 billion program to finance illiquid securities. European countries have increased retail deposit insurance, invested in the banking sector, and guaranteed institutional bank obligations as well as deposits. International coordination is evident as central banks executed a global 50 basis point rate cut, with further action pending.
Money market funds play a critical role in global finance and as such have specifically been targeted for government support. The Fed created an asset-backed commercial paper (ABCP) warehouse to purchase paper from funds, and a purchase program to bolster market confidence by assuring issuer access to funding. The Treasury introduced a temporary guarantee program for money market fund investors. Details as to the Fund's participation can be found at www.astonfunds.com/moneymarkets/. This raft of government actions should improve liquidity and spreads in the cash markets near term, and have a positive macro impact in coming months.
We believe that mortgage related market losses, slowing consumption, labor market developments, and deleveraging now point more clearly toward a recession. Thus, we are shortening the Fund's duration (measure of its sensitivity to changes in interest rates) in a defensive move, and have further tightened our credit standards to emphasize the highest quality names. We hold no brokerage paper, nor any sub-prime asset-backed securities (ABS) or mortgage-backed securities (MBS), nor any paper issued by special structures such as CDOs, CLOs, or SIVs. We are mindful of economic and market weakness, and are keeping quality and liquidity as our top priorities.
William R. Anderson, CFA
Portfolio Manager
Fortis Investments
The iMoneyNet First Tier Institutional Average includes only non-government institutional funds that also are not holding any second tier securities. Portfolio holdings of First Tier funds include U.S. treasury, U.S. government agency securities, repos, time deposits, domestic bank obligations, foreign bank obligations, first tier commercial papar, floating rate notes, and asset backed commercial paper.
While the 7-Day yields reflect both the current earnings and the total return equation, it more closely resembles the current earnings of the Fund.
The views expressed above are for informational purposes only and is not intended as investment advice. Since the date of the commentary, economic, market conditions and the portfolio manager's views may have changed. Holdings and weightings are subject to change daily. Holdings are provided for informational purposes only and should not be construed as a recommendation to buy or sell the securities mentioned.
Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost. An investment in a Money Market fund is neither insured nor guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the net asset value of $1.00 per share, it is possible to lose money by investing in the Fund. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost.