Fund Objective

The Standard Life Investments UK Equity Unconstrained Fund aims to provide long term growth by investing in UK equities.

View on Past Performance

UK equities recorded only a slight gain in February, as prospects of a US economic recession continued to cast a long shadow over global markets. Investors focused on the troubled banking sector, with news of further large writedowns by some UK banks denting already fragile investor sentiment. Among the larger banks, HBOS suffered significant weakness on news of falling profits, and this also weighed on the share prices of Lloyds TSB and Barclays.However, February was a positive month for the mining companies on the back of strong commodity prices and bid activity. BHP Billiton raised its bid price for Rio Tinto. As widely anticipated, the Bank of England cut UK interest rates by 0.25% to 5.25%, prompted by falling house prices and weakening economic data.The Fund returned 8.31% over the month, outperforming its peer group average return of 2.86%. The main detractor from the Fund's performance during February was British Airways, which was ordered to pay passengers compensation after it was revealed that it had conspired with Virgin Atlantic to fix fuel surcharges.However, this was more than offset by the strong performance of the mining sector, which continued to be bolstered by strong commodity prices and bid activity. Aquarius Platinum, Vedanta Resources, Kazakhmys and Rio Tinto all made positive contributions to performance. Our holding in industrials group Invensys also had a positive influence on performance after reporting strong operating profits ahead of expectations.During February, we reduced the Fund's holding in British Airways, which is exposed to the rising cost of fuel and could be vulnerable to weaker premium transatlantic traffic in the currently challenging economic conditions.

Future Expectations

The UK equity market is now showing signs of looking through earnings downgrades, having already priced in an extremely negative scenario on the credit crisis, consumer activity and the housing market. The key trigger for the market would be the resolution of the credit crisis, the return of merger and acquisition activity and further monetary policy easing.Even in the absence of these triggers, the market remains supported by an extremely low valuation in terms of earnings, dividend and free cashflow. The market also remains underpinned by strength in the resources sector, with industrial and mining companies continuing to perform well.

Fund Details