Best International Managers Fund (page 1 of 3)

On average, BIM fund has returned 17.21% pro forma since 1997 in USD with a standard deviation of 6.45%, less than half of the MSCI world's volatility. The pro forma portfolio has shown the ability to capture the upside during good years of performance, and limit the downside during negative years, even delivering positive returns.

US Stocks

Last Friday, GE said that the company is planning their future without Honeywell, and foresees no more talks with European regulators over the $45 billion purchase. The company conceded that the European Commission (EC) wants so many concessions that it is not optimistic that it will complete the purchase. The commission, the regulatory agency of the 15-nation EU has until the 12th of July to rule on GE's proposal. If rejected, it would be the first time the commission has acted alone to kill a US transaction.

A lot of hedge funds were involved in a substitution trade by selling their GE and bought the equivalent amount of Honeywell. The arbitrageurs that put the trade on are way under water in their mark to market. For those who have not unwound the positions must be holding out (hoping) for the US government to step in.

The EC's demands seem too tough, and the logic behind it appears to be political. If it is Airbus they are trying to protect, then the EU would probably be ready to go to war over the deal, and ultimately if the deal really does fall apart, there will be repercussions from the US government. Perhaps a trade war should not be far behind.

Meanwhile, GE stocks should benefit from the unwinding of this trade as the arbs scramble to cover their positions. We have GE on our buy list, and the current level of $49.00 looks attractive.

Last week we have seen profit warnings from companies ranging from fast food, consumer staple, airlines to telecommunication equipment. This confirm our cautious stand on the market, as we believe the earnings recovery may be delayed to the 1Q or 2Q of next year. The rally in April was based on the optimistic outlook of the companies themselves, and the market was ahead of itself.

Europe

In our last three 'weeklies' we wrote about the markets' earnings expectations and investors' degree of denial still being too high, in particular in the technology sector. With this week's profit warning of high profile companies such as Nokia, STM, Philips, JDS Uniphase and Nortel, to mention just a few, it has become obvious that there is no recovery in sight for the next few quarters. Even though these warnings might imply that it is especially the communications hardware industry that is hit hard, we would question this and expect software and especially IT services companies to warn soon. The Europe STOXX Technology Index lost a whopping 19% in just one week!

Our main impression from attending a conference about European technology companies last week was that these companies probably know more about visibility than they were willing to communicate. It is pretty obvious that demand is simply absent due to massive capex reductions of companies. Even statements that inventory reductions are on track do not really sound convincing if JDSU's and Nortel's profit warnings are taken into account. We do not expect demand to come back anytime soon. So far the market expected earnings to recover later in the year as many companies postponed capex to the latter part of the year. We suspect that these delays might eventually result in an increasing rate of cancellation of orders.