Fund Objective

To achieve capital appreciation.

View on Past Performance

The US market continued along its recent steadily rising path, resulting in a gain of 1.60% for the S&P500 in November. There is no doubt that corporate America is in great shape. Earnings growth significantly exceeded expectations for the third quarter and according to work by Merrill Lynch the balance of estimate revisions for US companies has recently turned positive from a negative slump in the summer.Cash levels on corporate balance sheets are at record high levels andprofitability and cash generation are very strong. However, the macro-economic data released over the month clearly now shows that the US economy is slowing.At the end of the month the ISM manufacturing survey fell to 49.5, implying contraction. This is the first time the ISM indicator has been below 50 since April 2003 and historically a fall to the current level has been a good indicator of interest rate cuts 3-6 months later.

Future Expectations

The inflation data remains well behaved and although commodity prices have stabilised, the effects of the fall in the summer will have a dampening effect on the data going forward. Overall this scenario is very bullish for US equity valuations which continue to remain at an eleven year low.The soft-landing scenario of 1995 provides a useful comparison. Valuations for US equities were close to their current level at the end of 1994. Despite a slowing in earnings growth to levels much lower than 14% growth we are seeing in the US today, the US market rose by 61% over the two years 1995 and 1996.

Fund Details