Our Funds - Fund Commentary
Market Commentary as of 9/30/08
Global Volatility
The third quarter of 2008 saw the continuation of volatility within the global marketplace. After a particularly strong second quarter, the three-month period under review saw a downturn in commodities, particularly mining and oil, as the global slowdown gained momentum and financial stocks enjoyed a brief resurgence. The Fund's exposure to commodities and minimal weighting in Financials, which worked well during the second quarter, consequently had a negative impact upon performance.
Globally, we are witnessing a serious lack of confidence in our banking system and leadership. The recent steps in the US and Europe have signified a step in the right direction. Further proactive—rather than reactive—moves need to be taken, however, to ensure that banks are adequately recapitalized and that confidence filters throughout the entire system. While the extreme volatility of 2008 has resulted in global markets dropping to increasingly attractive valuations, investor confidence remains woeful due to the lack of leadership. When the recovery cycle begins, those regions that have acted decisively, such as Russia and China, should benefit first.
While falling oil prices and the downturn in mining have affected Russia and China, the Fund's exposure in these emerging markets has been orientated towards their robust domestic consumption. Increasing intra-trade levels between these markets combined with decisive fiscal policy has maintained consumer confidence in Russia and China that we think, along with infrastructure projects, will be the key driver of their GDP growth. Emerging markets in general are increasingly likely to materialize as the primary engines of global growth during the next twelve months. Given their growing consumer classes, and with extensive infrastructure plans in place, China, Russia, India and, to a lesser degree, Brazil possess strong fundamentals for growth, unlike the West.
Elsewhere, the Fund increased its exposure to Healthcare, especially pharmaceuticals, during the past quarter as that area offers non-cyclical defensive growth. The high-yielding, cash-generating stocks in this sector have been somewhat immune from erratic oil prices and less susceptible to the global slowdown in providing good returns.
We continue to focus on the global sector views generated by our in-house research process. The downturn in world markets is pushing select sectors and stocks to attractive valuations and we will look to take advantage of those opportunities where we have identified long-term growth potential. We are focusing on companies with strong balance sheets, solid cash generation and the maintenance, or extension, of their capital expenditure plans.
Robin Geffen, Fund Manager and Managing Director, Neptune Investment Management Limited.
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.