Global Investments
International Limited

SOLID RETURNS IN VOLATILE MARKETS
With financial markets around the world remaining volatile amid concerns of a global recession and the continuing war on terrorism, investors have to face some difficult investment decisions.
Typically against this backdrop, investors choose to 'retreat to cash' i.e. bank and building society deposits, rather than risk potential losses in equity related investments. However, with global interest rates at their lowest levels for nearly 50 years this option may not be the solution.

Despite these difficult times we believe there is an excellent alternative available - The Premier Low Risk Fund plc.
This fund gives investors the opportunity to outperform bank and building society deposits whilst remaining in a low risk environment. The fund is designed to generate capital growth through a managed portfolio, or 'basket', of secure investments which may include: Endowment Policies - with in-built guarantees Property & Ground Rents Funds - which offer high income returns With Profit Bonds - for long term growth Other Secure Assets - which offer attractive returns
Fund Performance Since Launch The Fund offers an excellent opportunity for any investor who is looking for a medium term investment in a secure environment which is targeted to outperform returns from Bank or Building Society deposits. The Premier Low Risk Fund Plc offers Flexibility Available in 4 currencies (Sterling, US Dollars, Euros and Yen) Currencies are hedged to substantially negate any currency fluctuations No Initial Charge 100% of investment allocated to purchase shares in the fund Low Minimum Investment US$ 15,000 (or currency equivalent), reduced to US$ 7,500 (or currency equivalent) via a Portfolio Bond Note: The value of investments can fall as well as rise. Past performance is not necessarily a guide to future returns.

Equity markets have fallen sharply, making multi-year lows in the UK and Continental Europe. While there have been a number of reasons, Iraq has dominated the headlines and this is one explanation why there has been considerable reluctance from company managements to comment meaningfully on the outlook. We have held the same views on Iraq from the middle of last year: there would be a quick and successful war in the first quarter of 2003 but this was likely to be followed by political uncertainty in the Middle East. The key point was that uncertainty would reign throughout and this would restrain equity markets. At the time of writing we appear to have reached a peak in uncertainty.

A second main source of concern for investors has been the US economy. Economic reports have been mixed at best and growth in the final quarter of last year has turned out to be in line with our well below consensus forecast. We believe the economy will be slow to pick up with the consumer subdued after spending strongly in the past, especially on autos. Nevertheless capital spending should improve following the sharp cutbacks seen earlier, the emphasis being on maintenance and improving productivity rather than expanding capacity. Low growth in the US will impact other economies where domestic consumption is either showing very modest growth or, in the case of the UK, slowing.

The UK has underperformed other equity markets this year as forced selling has been more prevalent here than elsewhere. While it is very difficult to pick a bottom as falls of this nature can be self-feeding, valuations are definitely attractive, even if our earnings expectations were to be rather too optimistic. On our below consensus economic forecast (premised on slowing growth in consumer spending), our range of valuation measures are all below their historical norms. In particular, dividend yields look very appealing and the yield on BP now matches that on gilts. We have increased our exposure to the UK and will do so again if the market continues to fall.

As is typical at the nadir of bear markets, volatility has soared, although admittedly it has not reached the peak levels attained during 2002. This encourages us to take a more active approach than usual to the asset allocation to Western equity markets. Japan remains a conundrum: at the company level restructuring continues apace but at the macro-economic level policy appears to be in a vacuum. Meanwhile we continue to like the smaller markets of Asia and Latin America.

During the latest fall in equity markets, all sectors have moved down together in tandem. Following the extreme divergence in sector valuations at the height of the TMT bubble, valuations have converged and global sector PE's are now all remarkably in line with their historical averages. As a result, we do not hold strong sector views. Nevertheless we have raised basic materials and minerals to overweight. The Chinese economy and other economies in the region are growing quite strongly and, being less developed than Western countries, they consume more commodities per unit of economic growth. Additionally supply remains constrained in these sectors. We have also moved media to overweight.

We have highlighted the huge US current account deficit, how this would become more difficult to finance, and the Dollar weakness which would ensue. This has now materialised and the Euro has risen substantially against the Dollar. Since we do not find the Euro attractive in itself, rather it is gaining by default, we anticipate only modest further strength in the Euro. The US Federal Reserve is pumping out liquidity in a similar way to the Bank of Japan so we think there is less to choose in the shorter term between the Dollar and the Yen although we still expect marked medium term weakness in the Yen. Finally with the UK economy slowing, we expect Sterling to track the Dollar somewhat lower against the Euro.

The stronger Euro, very sluggish European economies and an impending change of leadership at the ECB lead us to expect a 0.50% cut in Eurozone interest rates this year. In turn this has encouraged us to reduce our expectation for European bond yields one year out. Greater conviction that the UK economy is slowing and strong structural demand for gilts have led us to make the same adjustment to our expectations for UK gilts. Globally, government bond yields should trade not far from current levels for the foreseeable future while corporate bonds should benefit later in the year as the US and European economies recover.