Summary of Investment Objective
The US Dollar Reserve Fund seeks to maximise current income consistent with preservation of capital and liquidity. The Fund invests at least 90% of its total assets in investment grade fixed income transferable securities denominated in US dollars and US dollar cash. The weighted average maturity of the Fund's assets will be 60 days or less.
Fund Manager's Report (as at Jul 31, 2010)
The Fund matched its benchmark over the month of July.
The Federal Open Market Committee (FOMC) did not hold a meeting during July, but the release of the minutes from the June meeting offered insights into the Committee’s deliberations, indicating that they expected the economic recovery to continue, but at a slower pace than originally anticipated. More than half of the participants generally saw the risks to their growth outlook to be tilted to the downside, while most continued to see balanced risks surrounding their inflation projections.
The results of the European stress tests on a sample of 91 European banks from 20 EU member states proved that the majority of banks were able to meet the required capital ratios. The market’s response was generally positive and funding conditions for European banks improved with market sentiment. As a result, LIBOR settings fell as much as 14 basis points and the slope of the LIBOR curve, when measured one-month to one-year, narrowed to 73 basis points, down from 82 basis points at the end of June. As at the end of July, futures contracts for Federal Funds were not fully priced for a rate increase of 25 basis points until the third quarter of 2011.
Demand for US Treasury bills remained strong throughout the month, with yields on short-dated bills closing July in a tight range 0.15% to 0.18%.
Assets remained stable throughout the month. Investments were primarily concentrated 45 days and in with select buying out the curve in bank commercial paper and certificates of deposit. In addition, variable rate obligations based on the daily Fed Funds rate and one-month LIBOR were also purchased.
With indications that LIBOR rates will continue to tighten and the recent release of the FOMC statement suggesting that rates will be kept low for an “extended period”, we will continue to selectively look to extend out the curve as opportunities present themselves.
Fund Fact (as at Jul 31, 2010 )
| Status | Sub-Fund of Luxembourg SICAV |
| Fund Manager | Coleen Gasiewski/ Chris Linsky |
| Launch Date | Nov 30, 1993 |
| Base Currency | USD ($) |
| Additional Dealing Currencies | GBP (£) |
| Benchmark | 7 Day USD LIBID |
| Morningstar Sector | Money Market USD |
| Total Fund Size (m) | USD ($) 290.2 |
| EUSD Fund Attributes | |
| EUSD Fund Status | in scope, distributions and redemptions |
| Information Source | Portfolio Composition |
| Application Threshold | >40% |
| Holding in Debt Claims | 96.57% |
| Grandfathered Bonds Held | 0.46% |
| Application Start Date | Jan 1, 2010 |
| Application End Date | Dec 31, 2010 |
| TID | 0.000000000 |
| Last Distribution Date | Aug 19, 2010 |
| Fees | % |
| Annual Management Fee (A shares) | 0.45 |
| Initial Charge (A shares) | 0 |
| Codes | |
| ISIN | LU0006061419 |
| Bloomberg Equity Ticker | MIGSDRI LX |
| Reuters Page Id | BLRKIJ |
| Swiss Valoren Number | 138733 |
| CUSIP | L1049K582 |
| Fund Risk Statistics | |||
|---|---|---|---|
| Name | 3 Years | 5 Years | Since Launch |
| Beta | -0.22 | 0.36 | 0.84 |
| Volatility (Annualised Standard Deviation) | |||
| US Dollar Reserve Fund | 1.9% | 1.6% | 1.1% |
| 7 Day USD LIBID | 0.7% | 0.6% | 0.6% |
Risk Grading
Low
High
Non-distributing
Important Information
The information on this website is available to Qualified Investors and Professionals in some jurisdictions on a limited private placement basis subject to applicable laws and regulations in the country of distribution. The information is confidential and should not be reproduced or distributed to persons other than the recipient.
The investment objective stated above is a summary of the main objectives of the Fund. Please refer to the BGF prospectus for full details.
A limited range of BGF sub-funds have a distributor status A share class that seeks to comply with UK Distributor Status requirements. Please contact the Manager for more information.
Performance
The Fund returned -0.01% over the month.
Rates remained unchanged in May however the minutes of the April Federal Open Market Committee (FOMC) meeting revealed a slightly more positive outlook. Although the Committee continued to reiterate its commitment to hold interest rates at historic lows for an “extended period”, it was noted that the job market is “beginning to improve” and that consumer spending has “picked up”. Concern over sovereign risk in certain peripheral countries within Europe contributed to an increase in financial market volatility in May. These conditions, along with continued asset outflows in money market funds, put upward pressure on LIBOR settings.
During the month, the US dollar strengthened versus the British pound. The currency hedge underlying this share class prevented returns in the hedged share class reflecting this trend.
Portfolio Activity
We have passively shortened the overall duration of the Fund, standing within a range of 32-48 days; an estimated 5-12 days shorter than the second half of 2009. Investments over the period were concentrated in the front-end of the curve at levels of LIBOR less eight to plus seven. Additional incremental extension trades were executed solely in government and agency securities. Adding to these asset classes allowed us to maintain duration, while continuing to diversify holdings and increasing the overall credit quality and liquidity of the portfolio.
Current Positioning
LIBOR and the rate at which banks lend to each other, as well as to the market, has been a prevailing theme so far this year; specifically in determining the investment landscape and design of the market. It is anticipated that LIBORs will remain under pressure in coming months
The liquidity profile of the Fund remains strong; at the beginning of June, an estimated 32% of assets mature within five business days.