Fund Objective

The fund aims to achieve an above average level of capital growth through investing in the quoted securities of companies operating in the United Kingdom.

View on Past Performance

In the Software sector we are continuing to find quality companies with strong business franchises, healthy order books and at low valuation levels. We also retain a positive outlook for the Support Services sector. The Bank sector has at last started to perform, as results have been solid and other momentum driven sectors have disappointed. RBS remains one of the cheapest banks on global comparisons; we expect this anomaly to continue to unwind. We sold our position in Old Mutual to finance the purchase of Legal & General. We did not wish to substantially increase an already overweight position in the life sector and chose to take our profits on Old Mutual, which can be a volatile share due to its high exposure to the South African Rand. Legal & General has a strong domestic franchise in the UK life market. It is also one of the UK's leading providers of indexed fund management services. We initiated a position in L&G as the Chief Executive, appointed at the beginning of 2006, is demonstrating a keen focus on shareholder value, while the prospects for enhanced value creation are not reflected in the shares' modest valuation.

Future Expectations

The first half of 2006 was characterised by narrow market leadership. The second half broadened out and was driven more by fundamentals than momentum. We expect this pattern to continue leading to further outperformance from our stance. UK equities still offer good value on a headline prospective price earnings ratio of around 13x. This measure, however, needs to be dissected into its component parts. Mid-cap stocks have outperformed significantly, driven by takeover speculation. The top 10 stocks, accounting for nearly 40% of the market by value, have lagged due to their perceived impregnability to takeover and are now looking very good value. We are wary of this speculative background and are considering increasing our mega-cap positions. Telecommunications stocks have produced good results and have proven to be shareholder friendly in terms of dividends and share buy-backs. This sector has further to go in terms of absolute and relative performance.

Fund Details