Fund Objective

To achieve long term capital growth.

View on Past Performance

The FTSE All Share index fell 5.1% in May. The FTSE 100 fell 5.0% and the FTSE 250 fell 5.9%(All Capital Only). These moves reflected a marked change in US interest rate expectations and dollar weakness, caused in part by economic data and in part by the pronouncements of the new Federal Reserve Chairman Ben Bernanke.In addition the attendant rise in market volatility appeared to catch out hedge funds which had been running volatility related strategies and on several days UK markets fell sharply towards the close as Investment Banks re-acted to neutralise their exposures. As anticipated, the MPC left interest rates on hold for the ninth consecutive month.Trading updates from Kingfisher and GUS (with the demerger of Experian announced for October) confirmed that the tough trading in DIY sheds is ongoing, despite the recovery in housing market activity since last autumn. The flip side was revealed by Kesa who commented on the high rate of widescreen TV sales ahead of the World Cup.Eventually Ferrovial increased their hostile offer for BAA to 900p despite the announcement of a Competition Commission enquiry and the CAA's views on capital adequacy. After the month end Ferrovial increased its offer and gained BAA's recommendation. Vodafone announced final results. The good news was the increase in the payout ratio to 60% of net earnings resulting in a 49% rise in the final dividend.However the mobile market remains very competitive and convergence between various different entertainment and telecommunications media is set to quicken. I n the oil and gas sector a new position was established in BG and the BP holding was topped up by reducing Royal Dutch Shell 'B' and selling John Wood Group. The holding in Cadbury Schweppes, where the health debate over carbonated drinks is a hinderance, was sold.

Future Expectations

The UK economy is still in good shape with much of the recent market woes being traceable back to events in the US. UK economic data indicates that GDP growth is still reasonable and maybe accelerating and whilst the MPC bias seems to be towards tightening this is not imminent.However, for now, investor confidence has decreased and needs to have time to recover. The prospects for many companies remain sound and the market set back is throwing up new opportunities as some valuations contract and yield support re-asserts itself whilst there is still ongoing corporate activity. This feels like a classic correction and consolidation after a sharp market rise and the fund remains fully invested.

Fund Details