September Review

Performance Review
 September proved the strongest month for equities in some time as a result of both economic data steadying and market participants becoming more confident that the FED will launch a second quantitative easing program (QE2) in early November.  Despite this move towards a risk-on sentiment in September the portfolio was able to eke out a small gain of 0.72% (putting the YTD at 8.7%), though this pales in comparison to the strong performance of most markets.

Unsurprisingly, the Treasury Bonds bucket was a large negative contributor (-87bps) as it suffered heavily in the first half of the month from both the reduction in risk aversion and fears about QE2’s impact on long-term government finances.   The Bond Funds (+7bps) also suffered during the first half of the month, but were able to benefit more from the recovery in the 2nd half of the month.

In contrast the fund’s equity positions benefited from the rise in the markets, with Other Equities (+44bps) and NCAV Equities (+33bps) both contributing well.  However, the main driver of performance in September was the Value Equities bucket (+209bps), which was driven by the position in THRX (+174bps) following some Phase II trial results (if circumstances allow, the position in THRX will be trimmed a little).  Against these profitable Long positions, the Hedges/Put options and the China-Related thesis were negative contributors (130bps).

Portfolio
44.0% - Long Treasury Bonds (21.2% TLT and 22.8% in the Aug-29 Bond)
14.4% - Long Bond Funds (6.6% HSTRX, and 7.8% VBIIX)
6.4% - Value Idea Equities (4.3% THRX, and 2.0% DRWI)
5.0% - NCAV Equities
2.8% - Other Equities (1.4% NWS, 1.0% CMTL, and 0.0% SOAP)

-0.0% (delta-adjusted) - China-Related Thesis (1bp premium in FCX put, <1bps premium in EWA put)
-7.0% (delta-adjusted) - Hedges/Put Options (27bps premium in S&P 2010 puts, 101bps premium in S&P 2011 puts and 24bps premium in a GS put)

25.9% - Cash