July 2010
The FTSE All-Share Index declined by 4.6% in June on a total return basis following a weak
performance during May. Sovereign debt risk concerns remained at elevated levels with
the potential negative impact on Europe’s banks generating greater focus. In addition, poor
economic data from the US and concerns over the impact of tightening measures in China
weighed on sentiment. From a sector perspective, on the one hand defensive areas of the
market such as tobacco, utilities and pharmaceuticals outperformed. On the other hand,
macro-sensitive areas such as mining and basic materials underperformed and the oil sector
was particularly badly affected by the fall in BP’s share price.
Over the month, we introduced three new holdings, Sage, Wm Morrison supermarkets and
Imperial Tobacco, all are characterised by their strong cashflows and attractive valuations.
Firstly, Sage, the accounting software company has a strong competitive position among
small and medium sized companies. Secondly, Wm Morrison, which helped by its value focus
is performing well and benefits from significant asset backing. Thirdly, Imperial Tobacco, where
the integration of its acquisition of Altadis is progressing to plan and provides the company
with good opportunities for revenue synergies. These purchases were funded by the sale of
Arriva following the approval by shareholders of the acquisition of the company by Deutsche
Bahn and we also tendered our Land Securities bond. There were a number of small additions
where we felt that certain holdings had been oversold during the market fall including United
Utilities, Pearson, Aviva and Close Brothers amongst others.
On a fundamental basis, we believe the path to sustainable economic growth remains
challenging and the outlook uncertain. Record budget deficits need to be repaired, savings
ratios enhanced to historic levels, inflation restrained, interest rates normalised, banking
re-regulated and quantitative easing unwound. None of these tasks is easy, and we remain
cognisant that the market may not necessarily be factoring in the full implications of the
tests ahead. We take increasing comfort that equity markets appear not to be expensive,
but volatility is likely to remain a significant characteristic of the market. However, where
opportunities present themselves we will continue to add to our holdings which we believe are
attractively valued and maintain strong business models.
Source: Monthly Factsheet Aberdeen Asset Managers Limited