Global equity markets ground steadily higher on the back of supportive central bank action and commentary. As well as cutting benchmark rates, the ECB instituted a range of unconventional measures stopping short of full quantitative easing. The US Fed continued a dialog of lower rates for longer whilst gradually reducing QE. Economic data was mixed with downward revisions to US Q1 GDP but encouraging near term manufacturing activity and a reduction in the deficit. China continued its positive near term trajectory with rising industrial output and retail sales. Energy prices broke higher on resurgent conflict in Iraq with Sunni rebels taking control of the second largest city. Tensions between Ukraine and Russia/pro-Russian rebels continued to smoulder. The MSCI World Index rose by 1.8%; Canada (+5.8%) and Japan (+5.3%) led, with the US (+2.2%) also ahead. Europe and Asia ex-Japan (both flat) lagged with Sweden (-1.7%) and France (-1.5%) the worst performers. Emerging markets (+2.8%) outperformed with strength in Latam and Asia, though emerging Europe was soft. Across sectors, Energy (+5.0%), Utilities (+3.6%), IT (+2.5%) and Health (+2.4%) led during the month, with Telecoms (-0.2%), Staples (flat), Industrials (+0.8%) and Financials (+1.0%) lagging.

The Fund gained 1.6%, underperforming the market by -0.2%, with holdings in the financial sector costing the Fund 84bps. The key detractors being Barclays (-12.2%), Societe Generale (-9.2%) and UBS (-8.8%). The New York Attorney General charged Barclays with fraud over the marketing of its dark trading pool, and SG & UBS were both caught up with fears of further litigation, SG on potential US sanctions violations given newsflow on BNP and UBS on forex trading given its strong market position. On the positive side Kenmare Resources (+54%) recovered much of the stock's earlier losses thanks to a disclosed (but rejected) approach by previous Fund holding Iluka Resources of Australia. Medical technology company Covidien (+23%) agreed to merge with another holding Medtronic (+4.5%), and recent addition Celgene (+12.2%) has started well as litigation fears recede. During the month we added to a number of under-performing positions: Tiangong International, Express Scripts, Cobalt Energy, Tupperware and Kenmare Resources before its approach (above). We sold Now Inc, a spin-out distribution business formerly part of National Oilwell Varco and reduced positions in Anardarko Petroleum and Verifone following strong performance.

The second quarter of 2013 started with the continuation of the positive sentiment from the first quarter, and this was maintained for much of the quarter. However, a speech by the US Federal Reserve towards the end of May spooked investors. The speech, which recognised that the US economy was healing and recovering, described that there would be a tapering to the extensive quantitative easing and then subsequently a withdrawal of that before the rising of US interest rates (over the medium to long-term).

At a broad level this was not new news, but it somewhat surprised markets, leading to a substantial sell-off in equities and an even more dramatic movement in fixed income markets. The equity market did start to rebound relatively quickly in the knowledge that an end to quantitative easing and the recovery of the US economy, were actually good things overall - certainly from the perspective of a long-term investor. The withdrawal of 'cheap money' from the quantitative easing program was the underlying cause of the market's short-term concern.

For the second quarter world equity markets as measured by the MSCI World (Developed Markets) Index returned almost a flat return of 0.65% . As hinted above this disguised the intra-quarter volatility, which saw markets rise by 3.15% in April, produce an almost pan-flat return of 0.04% in May and then decline by -2.46% in June.

At the market's peak on 21st May the market was just over 6.5% higher than at the start of the quarter and up over 14.75% to that point in 2013. The general market sell-off persisted for almost a month, but with investors having taken profits, the market rebounded sharply in the last week of June, although this only somewhat mitigated the market decline in June. And despite all this intra-quarter activity the market overall made negligible headway over the period.