Taking stock - an alternative approach to investment markets

Having passed the mid point of the year, it is becoming apparent that the stock market rally that investors had been hoping for is not making any headway.

Fundamentally the economic data released since the beginning of the year has been reasonably promising, and generally speaking interest rates remain low, and inflation within limits in all of the major economies. Against this background it would not have been unreasonable to expect some recovery in equity markets, but this situation has clearly failed to materialise.

There are a number of reasons, which have prevented Equity markets taking heart from what appears to be a reasonably sound economic background. The political situation developing in the Middle East, together with further problems on the Indian sub-continent, have given investors great cause for concern. In addition, more recently terrorist activities in Southern Europe have brought these fears closer to home.

As the anniversary of the attack on the World Trade Centre in New York approaches, there are widely held fears that further terrorist activity in New York might coincide with that date. In addition to these geopolitical concerns, valuation problems in the aftermath of the Enron scandal and the accounting improprieties of Worldcom in the United States have also served to undermine investor's confidence.

Despite our view that the markets are poised for a rally, the summer months, and indeed the whole of the third quarter are traditionally quiet in the investment markets, and coupled with the aforementioned difficulties, it is unlikely that the long awaited stock market recovery will emerge near term. As a result of this, many investors have been seeking alternative investment opportunities and Deutsche Bank in turn have been developing products to satisfy this requirement.

As part of an ongoing product development initiative the Deutsche Bank Absolute Returns Strategy (DB ARS) Group is launching a new hedge fund in July 2002. The DB Distressed Opportunities Fund seeks to achieve net annual returns by investing in deeply distressed discounted securities and obligations in the U.S. The Fund's Subadviser specialises in identifying and profiting from investment in companies with troubles and complex financial circumstances. Often, the urgency and complexity of the situation obscures the true value of the business of investment.

Why invest in Distressed Opportunities?

Distressed investing is an event driven hedge fund strategy that seeks to capitalise on negative events in the corporate debt markets. Distressed securities are a substantial and growing asset class with over $400 Billion in assets. With an abundant supply and limited buyers, distressed securities investing can be a highly attractive investment niche. In addition, opportunistic investing in distressed securities historically has generally produced returns that exhibit a low correlation to broad-based equity and fixed income markets.

DB Absolute Return Strategies (DB ARS)

DB ARS is part of the Deutsche Bank Group and is a leader in creating and managing hedge funds and has over $5.5 Billion* under management, including more than $550 million of proprietary capital invested in its own funds. DB ARS has over 90 professionals and is part of Deutsche Bank, a financial institution managing some $900 Billion, and well known for its strength, stability and disciplined risk controls. Since 1997, DB ARS has built a track record managing a broad range of hedge funds; both single-manager and multi-manager.

In difficult markets, with geopolitical and military considerations remaining predominant, and having a negative influence on the direction of equities, alternative investment strategies are likely to become increasingly attractive. Investors may wish to consider allocating surplus cash, or a percentage of their current portfolios, to this fund, which has a minimum subscription level of $250,000.

* As at April 2002