Changes in the Fund Portfolio

After a summer price correction (initiated by problems on U.S. mortgagemarkets), we increased representation of equities in the Fund portfolio from6.1% to 7.3% and overweighed this asset class against the benchmark further. Weinvested into shares of Erste Bank, power company CEZ and Telefónica O2 CzechRepublic. In contrast, we reduced positions in shares of Komercni banka (profittaking). Changes on a fixed income side of the portfolio were ratherinsignificant last month (portfolio duration declined to 3.20 years after3.23 at the end of August; benchmark duration grew from 3.27 to3.33 years).

Fund Performance

In September, NAV per share of the WIOF Conservative CZK Fund grew by +0.04%(to CZK 101.5783), whereas benchmark improved by +0.39%. Local medium-term bonds(measured by EFFAS CZK Liquid 3–5 Yrs total return index) added +0.26% m/m,Czech equities (measured by PX index) strengthened by 2.54% in the sameperiod.

Outlook and Expected Strategy

In our opinion, the outlook for CZK bonds within the rest of the year isquite favorable. We see no need for Czech central bank to hike key interest ratesoon, as the domestic currency is 2.5% stronger against EUR in comparison toJuly CNB prognosis and August CPI figure (2.4% y/y) was also below CNB estimate(2.6% y/y). Moreover, after the Bank Board meeting at the end of September(where all of its members voted for keeping the key interest rates unchanged),governor Tuma declared that the trajectory of rates in October CNB prognosismight be “somewhat lower” in comparison to the July prognosis. To sum up, weintend to keep portfolio duration close to the benchmark duration in the nearestfuture. Regarding the outlook for equity markets, we remain optimists.Historically very attractive valuations of key stock indices (measured e.g. byP/E ratio) are the reason. Nevertheless, the stock prices might still stayvolatile, when the investors will await eagerly how much the real estate andmortgage crisis hit the corporate earnings. In the months to come, we willprobably overweight equities further (7–10% of the portfolio).

Martin Zezula, Fund Manager