Archived October 20th, 2008

Investment Policy Committee Newsletter
October 20th, 2008

Grant Hopkins
(441) 294-7039
grant.hopkins@lom.com
www.lom.com

Equity Markets

We believe that stock markets, especially in the U.S., have reached a bottom, which is to say that this may not be the bottom. We expect that a short-term rally will continue as credit shows early signs of thawing and as investors cautiously test the waters. Therefore we are allocating an additional 1.0% to equities, 2.0% more to cash (to keep some of our powder dry), and lowering our bond allocation by 3.0%.

Currencies

The U.S. dollar has seen a big rally since our last regular IPC meeting on September 18th, moving from $1.44/euro to $1.29/euro and hitting a 2-year high. We expect the dollar to continue to strengthen, at least in the short term, and are therefore increasing our target allocation to 61.0% from 57.0%. We are lowering our Euro target allocation from 20.0% to 17.0% and our dollar bloc allocation from 6.0% to 5.0% to offset this trade.

Fixed Income

We believe that the government bond market could have a material price correction soon as money is moved into riskier assets such as equities. We therefore decreased our bond allocation by 3.0% using the proceeds to invest 1.0% more in equities and 2.0% more in cash.

Performance Review

In an interim IPC meeting on October 9th, we decided to allocate an additional 2% to equity if the Dow dropped 500 points and an additional 2% if it dropped another 500 points. A falling market on October 9 triggered us to invest the first 2% into the Dow DIAMONDS ETF (+2.4% as of Oct. 20th) and then 2% into the SPDR S&P 500 ETF (+9.2% as of Oct. 20th). Target allocations were left unchanged as of our last regular IPC meeting on September 18th.

Asset Class Currencies
Equities
53.0%
1.0%
US Dollar
61.0%
4.0%
Bonds
25.0%
-3.0%
Euro
17.0%
-3.0%
Hedge Fund
14.5%
-
JPN Yen
10.0%
-
Commodities
2.0%
-
Swiss Francs
4.0%
-
Cash
5.5%
2.0%
UK Sterling
3.0%
-
 


Dollar Bloc
5.0%
-1.0%

These recommendations are targets and do not represent specific trade ideas. Not suitable for all investors.

For further information call LOM Asset Management Limited or your local Investment Advisor. LOM is licensed to conduct investment business by the Bermuda Monetary Authority