Dexion Trading Limited Dexion Trading Ltd February 2014 Monthly Report (3871C)

TIDMDTL

RNS Number : 3871C

Dexion Trading Limited

14 March 2014

Dexion Trading Limited (the "Company")

February Net Asset Value

The net asset value of the Company's Shares as of 28 February 2014 is as follows:-

GBP Shares

 
      NAV        MTD Performance   YTD Performance 
--------------  ----------------  ---------------- 
 136.87 pence        +0.02%            -2.03% 
--------------  ----------------  ---------------- 
 

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

Managers continue to hold a constructive view on the developed markets, particularly the US, where they believe the recovery remains intact. The recent softness in economic data is likely to be related to the weather and, as such, is likely to prove transient. The unusually cold weather has simply served to delay items on the economic calendar, such as the Fed's first rate hike. In Japan, the BoJ appears set to deploy more policy action later this year. Specifically, the increase in consumption tax in April is likely to result in a contraction, at which point the BoJ looks likely to re-engage in further monetary easing. This year's correction in Japanese equity prices has offered a compelling re-entry point. In Europe, the economic situation continues to improve and there is tangible evidence that countries like Italy and Spain are becoming increasingly competitive. There has also been a sharp narrowing of peripheral spreads. The point of acute pessimism with regard to emerging markets appears to be abating as the sell-off over the past year and at the start of 2014 has made way for clearer positioning. Additionally, many emerging market countries are set to hold elections in the coming months, after which authorities are likely to implement more fiscally sound reforms. As such, while many managers believe that caution towards these markets remains warranted, others believe that compelling opportunities on the long side will start to surface in the second half of 2014, particularly after the elections. For the time being, however, economic optimism resides primarily in the developed markets due to their positive growth trajectory. In addition, the divergence in policy paths between the major economies offers plentiful macro trading opportunities across asset classes.

Market Overview

Global equity markets generally moved higher in February. In the US, equity markets fell initially on weaker-than-expected manufacturing data, but ultimately advanced on quarterly earnings and increased corporate M&A. European equity markets advanced on the back of stronger-than-expected Q4 2013 GDP data, with six of the largest economies in the eurozone reporting quarterly expansion. In Asia, equity markets moved lower on disappointing Chinese manufacturing data, fueling concerns about global economic growth and uncertainty in emerging markets. Despite the BoJ extending its loan support programme to bolster bank lending, Japanese equity markets faced sharp volatility on the back of mixed global economic reports, ultimately finishing lower on softer-than-expected US economic data and a stronger Japanese yen. Believing the current backdrop to be one of self-sustaining and synchronized economic expansion in developed economies, managers maintain, and some have recently increased, their long exposure to developed market equities, in particular the US, Japan and, to a slightly lesser extent, Europe.

The JP Morgan Global Government Bond Index (Local Currency) was up in February. Yields on 10-year bonds generally ended the month flat, masking intra-month volatility. The notable exception was in Japan, where yields declined steadily throughout the period. In the US and Europe, yields rose in the first half of the month as investors attributed the disappointing US data to the extreme winter weather. However, continued soft data combined with escalating political unrest in the Ukraine and Venezuela led to safe-haven buying, reversing yields into month end. The Merrill Lynch High Yield Master II Index edged up, while the JP Morgan EMBI+ Index was also higher as concerns about emerging market contagion dissipated in early February. Peripheral bond yields were mostly unchanged, with the exception of Greek bonds, which rallied on news that the EU was contemplating a maturity extension on loans to Greece. In the US, managers continue to favour tactically short exposures to US government bonds in light of the economic recovery. In Europe, they continue to be long the euro curve and although Draghi has been slow to implement policy changes, managers believe he will inevitably need to adopt a more dovish stance. Certain managers continue to be long European peripheral bonds (i.e. Greece) given improving economic data in this region. In Japan, the bias is to be generally short Japanese government bonds as policies focus on re-inflation.

Commodity prices broadly climbed in February as escalating geopolitical tensions in Ukraine fueled concern that energy and agricultural supplies would be disrupted. Crude oil prices rose on falling US inventories and as cold weather drained supplies of distillate fuels. Natural gas prices were volatile, soaring for most of the month on reports of declining stockpiles from arctic cold weather conditions throughout the US, but finished the month lower on the back of warmer weather forecasts and smaller-than-expected declines in US inventories during the last week of February. Gold prices climbed markedly on political turmoil in Ukraine and the disappointing US economic data. Base metals were also higher, with copper climbing on reports of record Chinese credit growth. In agricultural commodities, US grains finished higher on concerns over Ukraine and US export demand. Coffee prices in particular surged in February due to severe drought conditions in Brazil. Whilst light, exposure is generally expressed through short gold positions.

The US dollar ended lower against most of its developed and emerging market counterparts in February on the back of the US economic data reports. Sterling reached a four-year high against the US dollar as the BoE raised its growth forecasts, while commodity currencies appreciated with commodity prices rallying across the board, with crude oil and wheat prices buoyed by the Ukraine crisis. The Chinese renminbi notably weakened towards month-end, falling against the US dollar as the CBoC sought to weaken the currency, raising questions about the health of the Chinese economy. Long US dollar is the highest conviction trade in the foreign exchange sector given the continued US recovery, and the policy path being adopted by the Federal Open Market Committee against other major central banks. To that effect, long USD dollar against Japanese yen remains a prominent position for most of the managers. They also typically believe that the US dollar should appreciate against the euro and many are positioned accordingly; however, others are waiting for firmer indications that Draghi plans to implement accommodative measures before initiating euro shorts. Managers hold long exposure to the US dollar against various emerging market and commodity currencies, in particular the Canadian dollar, given the pressures on emerging markets and the deteriorating outlook for commodities.

Strategy Overview

Discretionary: +0.16%. Profits this month came from being long developed market equities, although these were somewhat muted as managers decreased risk levels following the January sell-off. Being long European peripheral bonds also proved accretive to portfolios. Certain emerging market focused managers generated gains from being tactically long emerging market currencies, believing markets were likely to favour those countries that have taken positive policy steps to address their current account and inflation issues (i.e. by hiking interest rates), such as Turkey and South Africa. Profits were largely offset by losses from long US dollar/Japanese yen positions, as well as shorts in developed markets government bonds (UK gilts and US treasuries).

Systematic: -1.15%. During the month, trend following managers were generally able to capture the renewed uptrend in equity prices; however, the metals sector proved more challenging as managers generally retained their short positions in gold, which rallied during the month. In addition, FX resulted in losses for some managers on the back of a reversal in commodity and emerging market currencies after the January decline. On the non-trend following side, currencies detracted from gains amid a bounce in commodity currencies. Further losses came from short positions in coffee and sugar as both markets experienced short squeezes on the back of dry weather in Brazil.

Thematic: +1.93%. Equity prices benefited equity market neutral managers as long positions outperformed shorts. Additional profits were driven by long credit positions in both corporate and non-agency RMBS. Gains were only marginally offset by shorts in agricultural commodities.

 
 Strategy                    Allocation      Number of     Performance by 
                      as of 28 February    managers as         strategy % 
                                      %             of 
                                           28 February 
------------------  -------------------  -------------  ----------------- 
                                                         February     YTD 
------------------  -------------------  -------------  ---------  ------ 
 Discretionary(1)                    65             14      +0.16   -1.92 
------------------  -------------------  -------------  ---------  ------ 
 Thematic                            11              6      +1.93   +1.11 
------------------  -------------------  -------------  ---------  ------ 
 Systematic(1)                       14              7      -1.15   -3.28 
------------------  -------------------  -------------  ---------  ------ 
 Other(2)                             2              7          -       - 
------------------  -------------------  -------------  ---------  ------ 
 Cash                                 8              -          -       - 
------------------  -------------------  -------------  ---------  ------ 
 Total                              100          33(1) 
------------------  -------------------  -------------  ---------  ------ 
 

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

(2) Funds in liquidation

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/3871C_-2014-3-14.pdf

This information is provided by RNS

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