Monthly Investment Bulletin
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Lloyds TSB Offshore Fund Managers Limited November 2010 Welcome Lloyds TSB Offshore Fund Managers Limited would like to welcome our intermediaries and private investors to our Offshore Investment Commentary for November 2010. The Offshore Investment Commentary includes our market commentary compiled by our Investment Managers, Scottish Widows Investment Partnership (“SWIP”), fund facts and our latest performance figures. Electronic versions can be downloaded from our website www.lloydstsb-offshore.com/funds Please note that any opinions expressed in this document are the opinions of the Fund Manager and the Investment Manager and should not be construed as investment advice. Nigel Jeacock-Fewtrell Director Lloyds TSB Offshore Funds How to contact us 1 Offshore Funds November 2010 Contents World Market Summary 3-4 Lloyds TSB Offshore Multi Strategy Fund Limited 5-8 Cautious Strategy Conservative Strategy Balanced Strategy Growth Strategy Progressive Strategy Aggressive Strategy Global US$ Conservative Strategy Global US$ Growth Strategy Lloyds TSB Offshore Funds Limited 9-14 Asian Pacific Fund Capital Growth Fund European Fund International Fund Japanese Fund North American Fund UK Fund Euro High Income Fund High Income Fund Sterling Bond Fund Sterling Deposit Fund Lloyds TSB Offshore Gilt Fund Limited 14 Gilt Fund Lloyds TSB Funds Limited 15 Absolute Return Bond Fund Lloyds TSB Money Fund Limited 16-18 Institutional Sterling Class Sterling Class Australian Dollar Class Euro Class New Zealand Dollar Class US Dollar Class Investment Performance Figures 19-22 31st October 2010 30th September 2010 Offshore Funds November 2010 2 WORLD MARKET SUMMARY World Market Views Summary October 2010 The following is a brief review of world markets up to 31st October 2010 provided by Scottish Widows Investment Partnership. It is not intended as investment advice, but we hope that you will find it makes interesting reading. Scottish Widows Investment Partnership are Investment Allocation Adviser to Lloyds TSB Offshore Multi Strategy Fund Limited, Investment Manager to Lloyds TSB Offshore Fund Managers Limited, Lloyds TSB Offshore Funds Limited and Lloyds TSB Offshore Gilt Fund Limited. Bonds Property Expectation of a renewed bout of quantitative easing in the United States There were few changes to excite investors during October, as growth in the and elsewhere was the major factor affecting global government bonds, and UK commercial property market remained flat. Data released during the it provided support for the market during the early part of October. Over the month showed a marginal 0.17% increase in capital values for September. month as a whole, however, benchmark ten-year yields were higher in the Retail scraped a 0.25% rise, followed by offices at 0.19%, but industrials US, the UK and Germany. nudged into negative territory for the second month in a row at -0.12%. In the first week, bond markets were bullish, on the presumption that Capital appreciation over the third quarter was a fairly sombre 0.5%, central banks would spend any newly created money on massive additional bringing growth since the beginning of the recovery to 15.8%. purchases of bonds. The Bank of Japan’s surprise announcement of a new The UK property market has become increasingly polarised in recent asset purchase scheme provided further impetus for the first-week rally. months; London and many areas in the South East are seeing inward But as the month progressed, the rally went into reverse, as market investment and rental growth, while more regional areas continue to observers began to query the extent of asset purchases both in the US and struggle. the UK. US inflation expectations increased sharply, as illustrated by the Office rents produced growth of 0.04% over the month, despite rents yield gap between inflation-protected Treasuries and cash bonds, which continuing to fall 0.05% at an all-property level. The sector has been reached its widest level since June. The second week of October boosted by a rebound in central London, where supply restrictions in the represented the biggest weekly setback for Treasuries this year. German City and West End, combined with an improving financial and business Bund yields rose as confidence grew over recovery prospects in the services sector, have been driving up rents once again. Meanwhile, eurozone, bolstered by a strong German Ifo survey. London’s retail sector has also seen strong tenant demand; this has led to Towards the end of October, peripheral eurozone bonds hit the headlines significant inward investment with around £350 million changing hands so once more as budget talks foundered in Portugal and the Greek finance far this year. minister spoke of problems with domestic tax receipts. The yield spreads Economic growth posted a better-than-expected 0.8% gain over the third between both countries’ sovereign bonds and German Bunds widened quarter. This was welcome news for property investors, who for months sharply. have been itching for signs of steady growth. A pick-up in the economy is Corporate bonds continued their good run, once again outperforming fundamental to a long-term recovery in rental markets. government bonds. Bonds issued by companies in the financial sector were among the most popular. Meanwhile, the market for new issues was increasingly active. A release from BP proved particularly popular. Many US European investors had sold out of BP following its problems in the Gulf of Mexico and are now increasing their exposure to the world's third largest US equity markets turned in a solid energy company. performance over October, buoyed by a predominantly positive third-quarter earnings season and speculation that the UK Fed will introduce new stimulus measures. The S&P 500 index was up 3.8% in dollar UK equity markets enjoyed another positive terms. month, though they continued to trade in a Nine of the index’s ten core sectors made gains. Materials and information narrow range. Investors took encouragement technology were strongest, rising 6.6% and 6.4% respectively. Telecoms from the absence of any calamitous was the only area to lose ground, falling 0.1%. economic news and a growing belief that Glum employment data knocked investors’ confidence in the early days of the US Federal Reserve ("Fed") would soon October, after a report revealed that private-sector employers had cut embark on another round of quantitative 39,000 jobs in September. Later in the first week, it was revealed that easing (buying back government bonds to non-farm payrolls had declined by a total of 95,000 in the previous month. increase the money supply). The FTSE All-Share index rose 2.5% in October. With metals prices soaring – thanks in part to a weakening Equity price declines might have been more substantial but for the fact that dollar – mining stocks were among the big winners; the healthcare and the data prompted more talk of new action by the Fed. This theme endured technology sectors lost ground. for much of the month, with weak economic reports countered by rumours of additional intervention. Ben Bernanke, the central bank’s chairman, Economic news was headed by a 0.8% increase in third-quarter Gross hinted at a fresh round of fiscal stimulus, stating that there appeared to be Domestic Product ("GDP"), which was somewhat stronger than most a case for “further action”. market commentators had expected. George Osborne, the chancellor of the exchequer, also announced the results of his public-spending review: A note of caution sounded in the final days of October, however. A report in government departments face an average 19% budget cut and up to half a the Wall Street Journal suggested that the Fed is likely to make only a few million public-sector jobs are expected to go. The breakdown of the plans hundred billion dollars available this time around. This compares to the $2 was broadly in line with expectations and should provide reassurance to trillion of aid supplied during the credit crunch. Improved consumer financial markets regarding the UK’s commitment to bringing its spending confidence figures and new home sales gave weight to this speculation. to heel. Elsewhere, the purchasing managers’ index for the services sector In company news, Alcoa topped analysts’ estimates for the third quarter. increased in September – somewhat promisingly, given the downward trend The aluminium maker also raised its 2010 global consumption forecast to of the previous few months – and the one for construction also rose despite an increase of 13% on higher demand from China, Brazil and India. the various bankruptcies in the industry. Consumer confidence improved, Turning to financials, JP Morgan reported a 23% increase in profit in the but the Nationwide measure of house prices fell. third quarter, but Morgan Stanley’s earnings failed to meet expectations. On the corporate front, there were impressive trading updates from the likes Finally, the technology sector was boosted by strong results from Microsoft. of Marks & Spencer, Royal Dutch Shell and Tesco; and British Airways It made a quarterly profit of $5.41 billion, better than analysts had reported its first half-year profit in two years as it prepared for its merger anticipated. with Spain’s Iberia. Deal activity included a £1 billion approach from Royal Bank of Canada for Bluebay Asset Management, and growing pressure on • US equity markets make gains in October. BHP Billiton to abandon its takeover of Canada’s PotashCorp. • Speculation arises about new stimulus measures by the Fed. • Stock markets gain further ground. • The third-quarter earnings season gets off to a strong start. • Third-quarter growth proves better than expected. • The government announces its public-spending review. 3 Offshore Funds November 2010 WORLD MARKET SUMMARY Japan Europe Japanese equities went through a sticky The market’s appetite for equities showed patch in October; the Topix index ended the no sign of abating this month, fuelled by a month down 2.2% in local currency terms.