Dexion Trading Limited Dexion Trading Ltd December 2013 Monthly Report (8170X)

TIDMDTL

RNS Number : 8170X

Dexion Trading Limited

16 January 2014

Dexion Trading Limited (the "Company")

December Net Asset Value

The net asset value of the Company's Shares as of 31 December 2013 is as follows:-

GBP Shares

 
      NAV        MTD Performance   YTD Performance 
--------------  ----------------  ---------------- 
 139.70 pence        +0.91%            +3.40% 
--------------  ----------------  ---------------- 
 

In calculating the Company's Net Asset Value the Company's Administrator will rely solely upon the valuation of GBP denominated Permal Macro Holdings Limited ("PMH") Class A shares provided by PMH. The Investment Adviser and third party service providers to PMH, rely on estimates of the value of Underlying Funds in which PMH invests, which are provided, directly or indirectly, by the managers or administrators of those Underlying Funds and such valuations may not be considered 'independent' or may be subject to potential conflicts of interest. Such estimates may be produced as at valuation dates which do not coincide with valuation dates for PMH and may be unaudited or may be subject to little verification or other due diligence and may not comply with generally accepted accounting practices or other valuation principles. The Investment Adviser may not have sufficient information to confirm or review the completeness or accuracy of information provided by those managers or administrators. In addition, these entities may not provide estimates of the value of Underlying Funds in which PMH invests on a regular or timely basis or at all with the result that the values of such investments may be estimated by the Investment Adviser. Both weekly estimates and bi-monthly valuations may be based on valuations provided as of a significantly earlier date and hence the published valuation may differ materially from the actual value of PMH's portfolio. Other risk factors which may be relevant to this valuation are set out in the Company's prospectus dated 12 March 2008.

Monthly Portfolio Review

Investment Adviser Portfolio Outlook

2014 looks set to be a year of better economic performance for developed economies. It is also likely to be characterised by higher rates. The US economy is in good shape, with the financial sector improving and house prices, along with household wealth, rising. In Japan, authorities look set to do even more to propel the economy forward, but to also counter the effects of the upcoming increase in consumption sales tax. Such a move gives renewed impetus to the "Japan trade" across many fronts, with a further weakening of the Japanese yen supporting Japanese stocks, while the government pension fund is moving its sizeable base away from Japanese government bonds into higher yielding foreign assets. In Europe, the fragile recovery continues to unfold, although the region still looks consigned to a low growth environment for the foreseeable future. Regional austerity is ongoing and with bank stress tests coming online, we are likely to see further deleveraging, a situation that is likely to weigh on economic activity. The macro backdrop over the past few months has become more conducive for the discretionary macro managers who in turn have greater conviction. Alongside opportunities in equities and currencies, the fixed income sector - a key asset class for these managers - looks to have turned a corner with the Fed explicitly stating that it is pursuing a different path from other developed market countries. In summary, the macro opportunities look set to be more plentiful in 2014 than they have for a while, not just across market themes but also across asset classes.

Market Overview

Most major global equity markets finished the month higher. After intense speculation during the first half as to when the Fed would scale back QE, the central bank announced on 18 December 2013 that in January it will taper monthly bond purchases to $75bn, with interest rates remaining low into 2015, news that sent global equity markets higher. In the US, economic data continued to be strong, with unemployment falling to 7% (a 5-year low) and stronger-than-expected Q3 GDP data. Into month-end, US equities advanced again on further positive jobs data, increasing the market's confidence that the economy can sustain a reduction in the accommodative monetary policy. In Europe, equities initially moved lower before recovering on positive US jobs data. Later in the month, European equities shook off a EU credit rating downgrade, instead paying attention to the favourable US GDP release. In Asia, Japanese equity markets rose in December as the Japanese yen fell to a five-year low against the US dollar, while Chinese equity markets fell on investor fears that the government is set to announce a reduced growth target for 2014 and renewed fears of a cash crunch. Many managers believe that an accelerating growth backdrop in the US continues to support equities and encourages the maintenance of long positions in the asset class. Others, however, have some small shorts as they believe valuations to be somewhat inflated. In addition, they do not want too much US equity exposure in a rising US interest rate environment. Managers maintain, and in some cases have increased, their long exposure to Japanese equities, noting that the renewed momentum in the "Japan trade" appears set to remain strong, with Japanese domestic investors now allocating increasingly to domestic stocks.

The JP Morgan Global Government Bond Index (local currency) was down marginally in December while the yield on 10-year US treasuries ended the month higher on the back of the Fed tapering. 10-year yields in the UK and Germany likewise ended higher. The Merrill Lynch High Yield Master II Index (a high yield bond index) and the JPMorgan EMBI+ Index both finished the month slightly higher. In the US, managers generally hold short exposure to US government bonds in light of strong US economic data and the Fed's decision to taper asset purchases. In Europe, despite some improvement in the economic situation, the region remains quite fragile and, as such, the ECB will need to be accommodative. Consequently, managers continue to hold long exposures along the euro curve. Certain managers also hold small short positions in Japanese government bonds given the explicit pursuit of inflation and investors' rotation away from domestic bonds.

In commodities, crude oil prices climbed on reports of a decline in US crude inventories and the improved economic outlook. Natural gas prices surged as cold weather in the US bolstered demand. In precious metals, gold and silver prices continued to move lower as speculation mounted that the Fed would start tapering in December. In base metals, copper prices rose on expectations of increased demand due to positive economic data. In agricultural commodities, corn prices advanced after the USDA lowered its forecast on US stockpiles, while wheat prices moved lower on larger-than-expected supplies, and soybean prices fell on favourable growing conditions in South America. Whilst light, exposure is generally expressed through short gold exposures.

The US dollar had a mixed month versus the major currencies. Against the Japanese yen it strengthened on speculation that the looming 3% consumption tax in Japan may lead the BoJ to increase stimulus measures. It also strengthened against the Australian dollar as the RBA continued to push for the Australian dollar to be closer to the $0.85 mark. Conversely, it declined against the euro, as the ECB avoided further easing measures, and sterling, on increasing speculation that the BoE would be the first central bank to raise interest rates. Emerging market currencies were also mixed against the US dollar, notably the Turkish lira, which declined 6% as market's questioned Turkey's political stability. Being long the US dollar against the Japanese yen remains one of the most popular positions in managers' portfolios in light of the aggressive implementation of "Abenomics". Against this backdrop, it is worth noting that while the Fed's balance sheet is shrinking, the BoJ's balance sheet is increasing. Managers are also generally long the US dollar against certain emerging market currencies.

Strategy Overview

Discretionary: +1.53%. Similar to the previous month, managers profited across all asset classes, particularly from long exposure to Japanese and US stocks and, to a lesser extent, European equities. Foreign exchange also proved profitable, with gains coming primarily from long US dollar versus Japanese yen, as well as long US dollar against certain commodity and emerging market currencies. In fixed income, gains were in long peripheral European sovereign debt, namely Greek government bonds, as well as tactical shorts in US and Japanese government bonds.

Systematic: -0.26%. Both trend and non-trend followers experienced losses in December. Any trend following gains from short Japanese yen and long equities exposures were overwhelmed by losses from long bond and rates positions, while non-trend followers lost money from long Australian dollar and Japanese yen positions and longs at the front end of the German and US yield curves.

Natural resources: -0.39%. Losses came from long gold and gold-related equities, as well as short energy and trading in agricultural commodities.

Relative value arbitrage: +0.59%. All funds were positive in December, with the strongest returns coming from fundamental equity long/short.

 
 Strategy                            Allocation      Number of      Performance by 
                              as of 31 December    managers as          strategy % 
                                              %             of 
                                                   31 December 
--------------------------  -------------------  -------------  ------------------ 
                                                                 December      YTD 
--------------------------  -------------------  -------------  ---------  ------- 
 Discretionary(1)                            68             18      +1.53   +10.84 
--------------------------  -------------------  -------------  ---------  ------- 
 Natural resources                            5              9      -0.39   -11.40 
--------------------------  -------------------  -------------  ---------  ------- 
 Relative value arbitrage                     8              3      +0.59   +10.06 
--------------------------  -------------------  -------------  ---------  ------- 
 Systematic(1)                               14              8      -0.26    -5.89 
--------------------------  -------------------  -------------  ---------  ------- 
 Cash                                         5              -          -        - 
--------------------------  -------------------  -------------  ---------  ------- 
 Total                                      100          37(1) 
--------------------------  -------------------  -------------  ---------  ------- 
 

(1) Discretionary and systematic have one manager in common.

Strategy returns are in US$, net of underlying manager fees only, and not inclusive of either Dexion Trading's or PMH's fees and expenses.

Supplementary Information

Click on, or paste the following link into your web browser, to view a full review of the Dexion Trading Limited portfolio.

http://www.rns-pdf.londonstockexchange.com/rns/8170X_-2014-1-16.pdf

This information is provided by RNS

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