Market Commentary
Concerns about the extent of the financial crisis in the US, slowing global economic growth and inflation pressures pushed international equity markets to a painful start in 2008. The MSCI World Index dropped 8.95% in dollar terms during the first quarter and the Standard & Poor’s 500 index suffered its worst fist quarter in five and a half years. Central banks struggled to improve liquidity in financial markets to deal with record write-downs and mortgage-related losses.
In the US, the Federal Reserve decided to implement the deepest cuts in borrowing costs for two decades. For the first time, Fed Chairman Ben Bernanke said the US economy may enter a recession and consequently US stock markets reacted to these pessimistic views. The MSCI North America Index fell 9.53% and was down 5.03% in the last 12 months. Reports showed that economic growth fell to the slowest pace since 2002, the housing slump worsened and corporate profits dropped. In March, consumer consumption fell to the lowest level in one year.
Yields on the 10-year US Treasury note fell 91 basis points in the first quarter as investors bet the Fed would continue to cut interest rates and seek the safety of government debt. The Lehman Aggregate Bond Index gained 1.7%.
Fund Commentary
Pentad North American Equity dropped 6.25% in the first quarter, outperforming its benchmark loss of 7.13%. Although the Fund’s two biggest holdings –Ishares S&P500 and Findlay Park US Small Cos.- fell 9.89% and 8.47% respectively, improved returns of the remaining underlying funds helped to reduce the loss. The Fund’s APR since inception is 6.04%, which is in line with its benchmark APR of 6.20%. Going forward, the Fund Manager will re-align the Fund’s asset allocation, taking some cash positions to ensure further protection from the current market volatility and enable it to capitalise from the recovery in the equity markets.
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