The ban applies to creating new short positions on named securities (mainly banks) from 4 Euro countries for 14 days. This is unlikely to have a material impact on the portfolio as in total we only have 3.5% gross short exposure to the named stocks (which are matched with our longs). Over the next 14 days, these shorts will remain in place in line with the model ratings so that they can be reduced in line with the models but not increased (with sector neutrality always maintained). We would expect model ratings to remain reasonably stable over that period (for example today’s trade did not include any of these stocks).

Even if the ban gets extended we still do not expect a material impact (the new restriction is akin to about 2% of the book having a limited capacity for a limited time). We already successfully dealt with a much broader shorting ban in 08/09. Operationally, a new short ban list is implemented from today until further notice using the same tool already developed for the 08/09 ban.

In terms of performance, our losses MTD have been contained to around 1.3% despite extremely negative style opportunity especially over the first week of the month. This week, we have seen a rebound which we are hoping will continue, as panic converges to more regular investor behaviour patterns.

Posted on 12 August 2011.