Newgate Capital Management LLC

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atural resource investments declined in August, though most of the losses were due to weakness in the energy market. The materials sector generally had positive returns. Light trading volume, economic and political uncertainty, and possibly just a sense of exhaustion by market participants has led, at times, to big daily moves but little overall direction. The Dow Jones-UBS Commodity Index lost 2.5% in August, while commodity-oriented equity strategies had more modest losses. Oil and natural gas are sensitive to demand in the US, and both were down sharply (losing 8.9% and 22.5%, respectively) as the economy showed continued weakness. Asian demand for oil has been strong, in many cases above forecasts, but global stockpiles are higher than average, dragging down prices. We fi nd the best value in large, integrated energy companies (14% of the Portfolio) that have high dividends and do not require access to the capital markets. We sold our modest holdings in Brazilian companies that are raising additional capital to fund development of their offshore oil fi elds. We continue to look for the US to consume more natural gas at these prices, with gas primarily supplanting coal for electricity generation. Given that our investment theme centers on increasing consumption, not necessarily higher prices, many of our holdings are servicing, drilling and pipeline companies. Industrial metals prices were mixed in August, with copper and zinc up, but aluminum and nickel down. Although all metals are sensitive to the health of the economy, each has its own supply characteristics and therefore they are not always highly correlated. As has been the case for some time, our focus has been on diversifi ed mining companies that typically include large production of iron ore among the rest of their business lines. Many specialty metals companies, as well as steel producers, had positive returns during the month despite broader market weakness. Gold and silver rose 5.6% and 7.9%, respectively. Mining companies had much higher returns, with the Philadelphia Gold and Silver Index(XAU) up 9.1%. The Portfolio currently has a 2% position in gold. Higher allocations to gold are not warranted given our macroeconomic outlook of steady, if unspectacular, global economic growth. Agrichemical stocks were clearly the big winners in August. BHP Billiton’s hostile bid for Potash Corp and persistent rumors that other companies would create a bidding war boosted shares of all fertilizer stocks. Collectively, these companies were up over 20% during the month. Even after taking profi ts, the Portfolio still holds over 9% in fertilizer companies. Other agriculture stocks also rose, in part on increased investor interest in the sector, but also as a result of the fl ooding in Pakistan. Nearly 9 million acres of farmland were flooded in late August, reducing the country from a net wheat exporter to an importer. *** Definitions: Dow Jones-UBS Commodity (DJ-UBS) Index: The Dow Jones-UBS Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market.

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