Market Outlook - Global Financials - Guy de Blonay


The New Star Global Financials Fund managed by Guy de Blonay began 2008 predominantly invested in Europe, where financial consolidation continued to drive returns. At the end of December the majority of the positions within the portfolio were in the east of Cyprus, Greece and Turkey and in the west in Switzerland and the UK. The fund maintained its high exposure to banks and general financial stocks with Standard Chartered and Man Group in the UK among the biggest holdings.

Some areas of the financial markets have become increasingly attractive such as hedge funds, which can perform well in difficult environments. Man Group, for instance, is a key investment opportunity for the fund.

Global financial exchanges and inter-broker dealers such as Deutsche Börse and ICAP also have potential as investments through which to benefit from heightened volatility. Uncertainty in global stockmarkets has typically generated increased trading volumes for such businesses as investors seek protection. In the banking sector, certain companies are less exposed to the sub-prime fallout, notably in countries where the structural growth themes remain intact. Standard Chartered, an international banking group operating in Asia, Africa, Latin America and the Middle East, is one example because it has strong earnings momentum driven by increasing credit volumes and stable credit quality in these markets.

At the same time the fund will aim to continue to avoid banks with exposure to the deteriorating credit cycle as well as those with exposure to the US. Financial companies with exposure to property in Europe, particularly in the UK, Ireland and Spain, will continue to come under pressure. The fund will also aim to continue to avoid retail banks with high exposures to potentially problematic loans and those likely to experience lower trading volumes on these products.

Companies in the financial sector were trading on comparatively low relative valuations before the credit crisis started in the summer of 2007. The recent de-rating as a result of negative market sentiment has pushed down share valuations to the extent that some are trading at 20-year lows. It is likely that there will be a contained slowdown in economic growth rather than a full-blown recession. In such circumstances, sentiment should begin to turn as earnings visibility becomes clearer, enabling financial stocks to enjoy a recovery.



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For further information, please contact Trina Arthur at New Star International on +44 (0)20 7225 9574.

NOTES TO EDITORS:

Past performance is not necessarily a guide to future performance. The value of investments and any income from them may fall as well as rise and investors may not get back the amount originally invested. The value of investments may also increase or decrease as a result of changes in exchange rates between currencies. The opinions expressed here are solely those of the fund manager at the time of print and should not be interpreted as investment advice.  

The New Star Global Financials Fund (formerly the WorldInvest Management Fund) (the "Fund") opened to retail investment on 19 May 2003. Performance history for the Fund includes that of the WorldInvest Management Fund which was launched on 28 December 2001.The Fund invests in a specialist sector, which may be less liquid and produce more volatile performance than an investment in a spread of investment sectors.

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