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Fund commentary

Market Review
Over the last three months, equities in general and financial stocks in particular were driven by high volatility and political news flow as numerous EU summits unsuccessfully sought to resolve the sovereign debt crisis. New governments were put in place Italy, Spain and Greece. The European Central Bank (ECB) provided a three-year tender of almost €500bn extra liquidity to banks, which was offset by less demand for shorter-term tenders and the banks’ continued preference for placing excess liquidity over-night with the ECB.

Fund Performance
The Fund underperformed the index over the past quarter mainly driven by the risk-on trade, which caused defensive stocks such as Japanese property investor Mitsubishi Estate and Japanese lender Mizuho Financial Group to perform relatively weaker than racier names. Texas-based lender Prosperity Bancshares contributed most on the positive side given its solid balance sheet and the strength of the oil-driven Texan economy.

Fund Positioning
With regards to activity, we took profits in strong performers including Prosperity Bancshares, French reinsurer Scor and litigation finance provider Burford Capital. We built new positions in Toronto Dominion Bank, Intact Financial Bank Mandiri and American Express in order to increase the Fund’s exposure to sustainable growth. The funds for these purchases came from selling our holdings in Close Brothers and inter-dealer broker Tullett Prebon.


Michael Wasserrmann & Stephen Hall
Michael Wasserrmann & Stephen Hall
31 December 2011
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Scottish Widows Investment Partnership Limited (SWIP) is registered in England and Wales, Company No. 794936. Registered Office is at 33 Old Broad Street, London EC2N 1HZ. Tel: 0131 655 8500. SWIP is authorised and regulated by the Financial Services Authority and is entered on their register under number 193707 (www.fsa.gov.uk).