3rd Quarter 2010 Commentary
The third quarter was a positive one for global equity markets, despite intermittent volatility. July was a particularly strong month underpinned by an increase in investor risk appetite as concerns regarding the European debt situation moderated. While disappointing data from the US saw some weakness in August, the markets rebounded strongly in September. Against this background, the Fund solidly outperformed its MSCI EAFE & Emerging Markets Index benchmark.
A focus on high-quality market leaders in the developed world and the best growth opportunities within emerging economies, rather than explicit cyclical exposure, drove much of that performance. Stock selection in both the Technology and Industrials sectors were especially beneficial to returns. For instance, excellent results from the Chinese internet giant Baidu reflected that company's continued growth. More generally, those companies exposed both directly and indirectly to infrastructure development within Emerging Markets also produced strong results.
During the quarter, we reduced the portfolio's position in Energy in accordance with Neptune's updated global sector views. Proceeds were used to increase the stake in Financials, where we added to firms with strong franchises, solid balance sheets, and excellent long-term potential in Emerging Market countries as banking penetration increases alongside the development of the consumer. In particular, we added to banks in both Russia and India.
We think the extremely positive outlook for domestic consumption in Emerging Markets is perhaps the single most important investment theme looking ahead. This becomes even more compelling in an environment in which growth is increasingly hard to come by in the developed world. With US bond yields at extremely low levels and the timescale for rate hikes distant, Emerging Markets remain exceptionally placed to capture the capital flows that will inevitably seek growth and yield. With Emerging Market equities priced at the same level as developed market equities, there is the strong potential for further re-rating higher going forward, which the Fund will be well placed to take advantage.
Robin Geffen, Fund Manager & CEO
Neptune Investment Management
As of July 30, 2010, Baidu.com comprised 8.78% of the portfolio's assets.
Note: Investing in foreign markets involves the risk of social and political instability, market illiquidity, and currency volatility. Holdings in emerging markets entail the further risk of unstable legal systems, increased volatility, and even less liquidity.
Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by BNY Mellon Distributors Inc.