August 2008
Equity markets started the month poorly, remaining under pressure from concerns about
the deteriorating economic outlook and continuing inflationary pressures. However, there
was some respite during the month as weakening commodity prices allowed the market to
recover from its low point. Over the month the FTSE All-Share fell by 3.6%. Unlike the previous
month, there was little divergence across the size spectrum, with the FTSE 100 falling by 3.7%
compared to falls in the SmallCap and the MidCap segments of 3.7% and 2.9% respectively.
The themes of the previous month remained in evidence, with the banks deleveraging and
raising additional capital, weak economic data releases and further falls in house prices.
However, the impact of Santander's bid for Alliance& Leicester, and the sharp decline in oil
and other commodity prices resulted in a turnaround in sector performance. Mining and Oils
were the weakest of the sector groupings, and these were joined by Telecoms following some
disappointment with results from Vodafone and BT. Of the gainers, some of the more defensive
areas performed well, notably Tobacco and Pharmaceuticals, the latter benefiting from
AstraZeneca winning a patent battle on a key drug Seroquel. In addition, both Banks and Life
Assurance performed well, the latter also helped by a good reporting season.
While the ECB responded to higher inflation data, raising interest rates to 4.25%, the MPC left
rates unchanged, although their minutes highlighted the dichotomy of higher than expected
short term pressures on prices versus lower than expected economic activity. In terms of data
releases, news flow was unequivocally weak with industrial production, manufacturing output
and the PMI all pointing to further slowdown.
Activity saw the introduction of Tesco into the fund, the stock having fallen on the back of the
profit warning from Marks & Spencer. In addition, we added to Rolls-Royce, a relatively new
holding, and topped up some of the existing names on weakness, including Daily Mail and
General Trust, National Grid, Venture Production and Kesa. These were funded by the sale of
TDG following its agreed offer from Laxey, and some profit taking in Royal Dutch Shell. We also
drew down an additional £2m from the loan facility.
Source: Monthly Factsheet Aberdeen Asset Managers Limited