DASL Dexion Alp.

    RNS Number : 0168Y
  Dexion Alpha Strategies Limited
  01 July 2008
   

    Dexion Alpha Strategies Limited 
    Investment Update

    Following recent consultation between the Board of Dexion Alpha Strategies Limited (the "Company"), Dexion Capital (Guernsey) Limited
(the "Investment Manager") and RMF Investment Management (the "Investment Adviser"), it has been determined that the strategy weights within
the Company's portfolio be adjusted in an effort to increase the risk-adjusted and absolute return profile of the portfolio in the light of
changing financial market conditions. 

    John Angell and Edwin Garcia from RMF Investment Management commented: "Given our conservative economic outlook, we will continue to
reduce allocations to equity-based strategies and will add long volatility exposure, both in Asia and through the addition of a new
short-term managed futures strategy. The allocation to the European loan portfolio will be increased to take advantage of what we believe is
a compelling opportunity to generate profits within credit markets. Exposure to commodities and energy will be reduced; though we remain
positive on the alpha opportunity within these strategies, we feel it is prudent to take some profits and allocate to strategies which have
a stronger correlation to realised volatility."

    The planned asset allocation changes, proposed to be implemented by August 2008, are summarised in the table below. 

 Strategy(1)                  March 2008  Target   Change
 Asian Opportunities             19%       24%       +5%
 Healthcare Opportunities        10%       10%    no change
 Special Situations - Debt        5%        6%       +1%
 Special Situations - Equity     16%        8%       -8%
 Energy                          10%        6%       -4%
 Commodities                     20%       16%       -4%
 Environmental Strategies         6%        7%       +1%
 Emerging Markets Macro           8%        6%       -2%
 European Loan Opp.               6%       10%       +4%
 Short-term Managed Futures       0%        7%       +7%

    (1) The exposure to the Commodities strategy is the Company's investment in the commodities fund managed by the Investment Adviser, i.e.
a class of RMF Special Opportunities Ltd., which itself invests in Energy strategies.
    

    Strategy Overview

    Asian Opportunities (+5%)
    The Investment Adviser remains positive on the opportunity set provided by Asian financial markets. While it believes that the growth
potential for the region remains favourable, it is cognisant of mounting risks through accelerating inflation and the knock-on effects on
corporate earnings. Consequently, the Investment Adviser is adding relative value and event driven managers to the Company's portfolio, who
it believes can profit from ongoing volatility in the region. The Investment Adviser is not adjusting the Company's long/short equity
exposure at this stage. Prior to the volatility seen in the summer of 2007, the Investment Adviser reduced the Company's directional
exposure and the Company's largest positions are in highly hedged managers who can provide strong alpha from both the long and the short
sides. The Investment Adviser believes that there will be increased dispersion at the individual stock level and that this will aid the
Company's underlying managers who are focused on fundamental stock picking.

    Healthcare Opportunities (no change)
    This strategy has performed poorly in 2008 so far and while the Board recognises investors' disappointment with returns, the Investment
Adviser maintains conviction in the strong alpha opportunity the strategy offers. Therefore, it is not proposed to change the allocation to
the Healthcare strategy, although the Investment Adviser is taking steps to concentrate the portfolio in its highest conviction managers who
have demonstrated an ability to deliver strong returns over the medium-term. While this strategy is not a call on the sector, the Investment
Adviser believes that the bulk of opportunities are weighted to the long side presently. Healthcare stocks are trading at large valuation
discounts relative to historical levels, and are exhibiting positive (and above market) earnings growth, which the Investment Adviser
believes will translate into excellent returns for the Company's managers.

    Special Situations - Debt (+1%)
    The Company reduced its debt special situations exposure entering 2008 given concerns over financial market instability, but the
Investment Adviser is now comfortable adding once again in the expectation that increasing opportunities will emerge in the months ahead.
Given the Investment Adviser's conservative economic outlook, it is adding exposure to nimble managers who trade credit from both the long
and the short sides, and who it believes are best placed to time allocations to long-biased distressed opportunities. The Investment Adviser
believes that such distressed opportunities are an area which will become more interesting over time, and this is a strategy that it is
monitoring closely.

    Special Situations - Equity (-8%)
    The Investment Adviser has significantly reduced the Company's equity special situations exposure given the dramatic decline in
corporate activity. The redemptions have been focused on long-biased managers, whilst the Company's positions in managers who construct
their portfolios with strong downside protection have been maintained. The Company's exposure to Asian special situations, where profit
opportunities are plentiful, has also been maintained; indeed, Asian M&A volumes are up 10% in 2008 versus 40-50% declines in Europe and the
US.

    Energy (-4%)
    After a good 2007, performance in 2008 has been disappointing and upon review of the allocation, the Investment Adviser has taken the
decision to reduce its weight and focus the Company's exposure on experienced managers who have consistently delivered positive returns.
Consequently, the Company's European power and carbon trading exposure has been redeemed. The Investment Adviser does not rule out coming
back into these strategies at a later stage, but for the time being it feels there are better alpha opportunities elsewhere. The Investment
Adviser emphasises that the reduced allocation has nothing to do with the strong increase in energy prices. The Company's oil exposure is
mainly through equities, and underlying managers' use of futures for hedging purposes has actually been a hindrance, given the strong
out-performance of the physical market compared to oil stocks. The Company's non-equity managers have very little direct oil exposure and
are more focused on natural gas and inter-commodity spread trading (e.g. crack spreads).

    Commodities (-4%)
    The Investment Adviser remains bullish on this strategy, but given the relatively good performance of late, it has decided to take some
profits and re-allocate to other strategies. To re-state the Investment Adviser's belief in this strategy: significant informational
inefficiencies exist across the commodity complex, which leads to volatility and excellent long and short alpha opportunities for
experienced commodity traders. The Investment Adviser remains constructive on the fundamentals in the near-term, with demand heading higher,
whilst supply struggles to keep pace (e.g. grains, where inventories have declined in 5 of the last 6 years). While large upward moves have
been witnessed across the commodity complex, the Company's gains have accrued from a mixture of directional and spread trading strategies,
providing the Investment Adviser with confidence that the downside should be limited in the event of sharp downward corrections, which it
feels are inevitable following strong price rises. There has been much discussion in the press recently concerning the impact of speculative investors on commodity price movements. The Investment
Adviser acknowledges that long-only investors are probably contributing to the price rises; however, it would emphasise that fundamentals
continue to deteriorate and that non-exchange-traded commodities (e.g. rice) have risen just as fast as their exchange-traded counterparts,
and in some cases faster.

    Environmental Strategies (+1%)
    There is a modest increase in the allocation and no change to the Investment Adviser's positive view on this strategy. It is seeing
increased liquidity in these markets, which helps the Company's managers to borrow stock for short positioning and in the use of derivatives
for hedging purposes. Clearly, rising energy prices help encourage investment in alternative energy sources; however, the Investment Adviser
notes that the Company's managers are well aware of the possible risks emanating from an economic downturn in the form of reduced research
and development, and they are managing the downside in accordance with this risk. 

    Emerging Markets Macro (-2%)
    The Investment Adviser is trimming the allocation to underlying managers where there is notable directionality in their portfolios.
Whilst the strategy still offers significant opportunities, the Investment Adviser believes it is prudent to cut exposure given growing
inflation risks and the lagged effects of a growth slowdown in the developed world. It still believes upside is available in emerging
markets currencies and increasingly in relative value trades between economically strong and weak nations, where it expects performance
dispersion to grow going forward.

    European Loan Opportunities (+4%)
    The problems with this strategy have been well documented. Given unprecedented declines in loan prices which saw the asset class
underperform high yield assets, the Investment Adviser views the opportunity set within this area as compelling. Whilst timing the recovery
is always difficult, it believes that the downside is relatively limited from this point and that it is better to be invested earlier rather
than later. Therefore, the Investment Adviser added to the Company's European loan exposure in June, in the expectation that over the
medium-term the strategy would deliver strong risk-adjusted returns. The Investment Adviser's confidence in taking this step is enhanced by
the significant alpha generation experience of the PEMBA team managing the portfolio. They have been investing in European bank loans since
2000 and have not experienced a default since then.

    Short-term Managed Futures (+7% - a new allocation)
    The Investment Adviser believes that realised volatility will remain elevated going forward and that this will be a good source of alpha
for underlying managers with the expertise to capitalise on market dislocations. Therefore, the Investment Adviser plans to add short-term
managed futures to the portfolio as this strategy benefits from higher levels of realised volatility. In addition to this, the strategy is
negatively correlated to the rest of the Company's portfolio and stock markets generally, making it an excellent portfolio diversifier. The
average correlation of the underlying managers that the Investment Adviser plans to add to the Company's portfolio are shown below and
demonstrate this point:

                                                                     Average Correlation (April 2006 to May 2008)
    Dexion Alpha Strategies Ltd. (USD)                              -0.16
    MSCI World Stock Index TR (USD)                              -0.40

    From a diversification standpoint, it is clear that the strategy adds value. In terms of absolute returns, the underlying managers that
the Investment Adviser is looking to add have recorded an average annualised return of 26.13% (2) since the Company's inception. The
Investment Adviser notes that the recent sharp increase in realised volatility has provided an excellent trading environment for these
strategies. While gains of the same magnitude cannot be expected in the future, the Investment Adviser believes that the negative
correlation of this strategy to both equities and the returns from the Company's overall portfolio makes it a compelling investment
opportunity.
    Short-term managed futures strategies are designed to profit from rapid near-term price movements. Managers will generally employ
sophisticated quantitative systems designed to identify and capture swift price changes, and rely on liquidity and market volatility in
order to trade with high frequency. The investment horizon averages around three to five days, but it can be as short as intra-day and as
long as one month in some cases. Through the combination of counter-trend, break-out and short-term momentum strategies, short-term managed
futures has a strong contrarian bias, and along with a much shorter time horizon, is uncorrelated to traditional trend-following strategies,
by far the largest component of the managed futures industry. Given the benefit realised volatility provides the strategy, this makes it
uncorrelated to most hedge fund strategies and also to traditional investments. As with all strategies, however, there are environments in
which it struggles to perform, these being periods of low market volatility and strong persistent price trends.

    Enquiries: 

 Robin Bowie / Ana Haurie  Tel: +44 (0) 20 7822 2260
 Dexion Capital Plc

 Martine Harrison          Tel: +44 (0) 1481 743 945
 Dexion Capital
 (Guernsey) Limited

 Anthony Payne             Mobile: +44 (0)7930 643 983 
 Peregrine Communications  Email:
                           anthony.payne@
                           peregrinecommunications.co.
                           uk
    
(2) Both the correlation and annualised returns numbers are arithmetic averages.

This information is provided by RNS
The company news service from the London Stock Exchange
 
  END 
 
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