Fund Objective

The Fund aims to achieve long-term capital growth through investing primarily in securities of companies domiciled or having a substantial proportion of their operations in the United Kingdom.

View on Past Performance

The gloom and risk aversion of late 2007 continued into the first quarter with financial stocks continuing to announce further write downs, culminating in the implosion of Bear Stearns, the US investment bank.Risk aversion and shorting by hedge funds took a twist away from financials and cyclicals with any companies that had even modest debt being sold off aggressively. The Fund's performance was in-line with its benchmark, the FTSE 350 Index.Strong performance was gained from the fund's position in Wellstream, a supplier of technically demanding flexible pipeline to the oil industry and the performance of some of our Support Services' holdings. In particular Serco and Xchanging, where we are playing the robust growth in private and public sector outsourcing.Northgate Information Solutions, a provider of IT services, particularly HR outsourcing, was also a major contributor to performance; the holding was sold after the company received a bid by US private equity firm KKR at a significant premium to the prevailing share price. This demonstrates that despite the credit crunch private equity can still be active where they see value that the public markets refuse to recognise.A fund position in Wood Group, an oil equipment and engineering services company, was established during the quarter. The company is well positioned to benefit from the significant capital expenditure that is going into oil exploration in various sectors from the sub-sea market to oil sands and onshore pipeline engineering. The company also has a gas turbine business which should benefit from the increased maintenance and retrofitting of gas turbines.

Future Expectations

Although frustrated by short term sentiment we remain convinced that large sections of the UK equity market offer outstanding value. The overall market valuation for 2008, with a dividend yield of 4½% and a price to earnings ratio of 10½ x, is compelling.The short term panic has seen many quality companies and sub sectors oversold to crisis levels which could only be justified by a prolonged collapse in economic growth, which we do not expect due to central bank action and global growth. Directors share buying and corporate activity give us further cause for optimism.

Fund Details