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October was a volatile month which at one point saw European stockmarkets down more than 10% from their 2014 peaks. The heightened risk aversion that comes with sharply falling markets tends to push discounts out to wider levels, and this was a feature of some of the stocks in our portfolio during the month. Most outperformed markets in NAV terms which is encouraging as it allows for some catch up in performance when discounts narrow again. One particularly painful investment over the month was Aker ASA, which fell by 22% as its NAV was hit by the rapidly falling oil price. With investments in oil exploration company Det Norske and in oil services company Aker Solutions, its value has been hit hard. The company’s policy of paying out a relatively high dividend and of actively managing its investments in order to maximise value, is a source of confidence in the long term potential of Aker. On a discount of almost 40% and with such a swift fall in value over the month, we believe there will be a bounce in the share price. However, in the very near term sentiment will continue to be driven by moves in the oil price.

Whilst we don’t hedge our foreign exchange exposure as a matter of course, there are times when we do wish to hedge particular exposures. During the month we decided to hedge most of our Japanese Yen exposure, as we were mindful of the potential for further QE in Japan which would weaken the currency. The timing proved fortuitous, as the BOJ announced aggressive additional monetary stimulus plans at the end of the month. This not only weakened the currency sharply, but also sent the stock market up strongly. Our two stocks in Japan, Hitachi and Mitsui Fudosan were beneficiaries of this move as their share prices jumped by 5% and 9% respectively.

We raised some cash early in the month by taking profits out of Asia Pacific in order to take advantage of more compelling opportunities in Europe where markets had been far weaker. Within our universe of European companies, several which we didn’t own on valuation grounds had fallen by more than 25%. We wanted to take advantage of more compelling valuations here and therefore raised some cash from a part of the portfolio that had not suffered material declines in recent weeks, and where valuations and discounts were less interesting. Money was raised from KT Corp in Korea, Westfield in Australia and Jardine Matheson in Singapore. We made a few small new investments in European holding companies during the month, as well as some additional investments into existing holdings.