BL-Global Flexible's net asset value fell 3.7% in the first quarter of 2011 due to various factors that weighed on the fund’s performance over the quarter:
- The fund’s reference currency, the euro, has risen against most other currencies. Only 40% of BL-Global Flexible’s assets are denominated in euros;
- BL-Global Flexible does not invest in financial stocks from the industrialised countries: these sectors made strong gains in the first quarter. At the other extreme, the more defensive sectors, in which the fund prefers to invest underperformed, and in some cases even declined;
- In this context, the fund’s strategy to hedge part of its equity exposure through the sale of index futures had an additional adverse impact on performance.
There were no significant changes to the fund’s asset allocation over the quarter. Bonds were slightly increased following the rise in long-term interest rates between September and February. By the same token, the correction on some stocks was used to increase their weight in the portfolio, which boosted the net equity allocation from 43% to 48% (82% of which 34% are hedged through the sale of futures). By the end of the quarter, the average PE of the equity portfolio was 13, while the average dividend yield was 3.6%.
BL-Global Flexible is an actively managed non-benchmark fund that is guided by fundamental analysis. Our main convictions are currently as follows:
- The recovery in the economy – and in turn on the stock markets over the past two years is to a large degree artificial and thus fragile. A significant slide in share prices can not be ruled out;
- The monetary policies conducted by the central banks - and the Federal Reserve especially - have incited investors to take more risk. This has resulted in a significant outperformance of cyclical and financial sectors and small and medium caps. These segments currently appear particularly vulnerable. At the other extreme, there are good opportunities within defensive sectors and large cap companies.
- The risk/return of government bonds has deteriorated given the low level of interest rates and rising public debt. Tactical opportunities do pop up from time to time, however. As in the case of equities, active management is called for as far as bonds are concerned;
- The emerging markets have much better fundamentals than the industrialised countries. In this respect, the weighting of the Southeast Asian countries in the portfolio will remain high.
