Fund commentary

Market Review
Equity markets and financial stocks thrived on the positive market perception of the three-year LTRO offered by the ECB as this removed the near-term liquidity concerns of the European banking sector. Similar to 2011 the first quarter of this year has been dominated by a return of risk appetite, resulting in strong performance of high-beta stocks and financial assets. With tailwind from better than expected economic and employment data, financial stocks from across the pond led the sector higher.

Fund Performance
The Fund underperformed the index over the quarter mainly driven by the risk-on trade, which caused defensive stocks such as Swiss private bank Julius Baer, Canadian insurer Intact Financial and US insurance broker Marsh & McLennan to perform relatively weaker than racier names. Both JPMorgan and Wells Fargo contributed most on the positive side given their solid balance sheets, recovering US economy and the Fed’s approval of their respective dividend and share buyback plans.

Fund Positioning
With regards to activity, we reduced the holding in HSBC and used the proceeds to participate in the placing of AIA as this represents one of the few pure, high-quality plays on Asian insurance. We also took gains in Texas-based Prosperity Bancshares in order to build a position in derivatives exchange CME Group. We sold the Fund’s stake in non-life insurer RSA as we see greater potential in UK property company Hammerson whose management has decided to divest the office activities so as to focus on shopping centres.