Changes in the Fund Portfolio

In November, the weight of equities in WIOF Conservative CZK portfolio wasdecreased from 8.1% to 7.1% (however, in comparison to the benchmark, equitiesstill overweighed the portfolio). Following the realization of profits on ČEZshares we increased our positions slightly in Erste Bank (following its deepprice correction). Given a rise in the benchmark duration (from 3.24 to3.83 years), the duration of the portfolio was increased accordingly (from3.25 to 3.86 years), via a switch from CZGB 2.55%/2010 to CZGB 3.75%/2020.

Fund Performance

Last month, NAV per share of the WIOF Conservative CZK Fund decreased by1.06% (to CZK 101.2335), whereas the benchmark shed 0.82%. Local medium-termbonds (measured by EFFAS CZK Liquid 3–5 Yrs total return index) declinedby –0.36% m/m, Czech equities (measured by PX index) plunged by –8.14% inthe same period. The main reason for the fund’s underper­formance was thehigher weight of equities in comparison to the benchmark.

Outlook and Expected Strategy

At the end of November, the Czech National Bank raised the key interest rateby 25 bps to 3.50%. In the view of a further rise in headline inflation at thebeginning of 2008, we expect the central bank to tighten monetary policyconditions again in 1Q/2008. Since CZK bonds are currently at attractive levelsin comparison to their EUR peers and nervousness still felt in markets withrisky assets, we would keep the duration close to the benchmark for the timebeing. In the last few months, equity markets were hit by a severe pricecorrection. Investors remain cautious, being more sensitive to “bad news”than to “good news”. We do not expect this situation to change considerablyin the weeks to come. However, given the positive seasonality we have witnessedin the last years as well as the favorable valuation of key stock indices(measured e.g. by P/E ratio), we would stick to this overweighed position inequities.

Martin Zezula, Fund Manager, Raiffeisenbank a.s.