Fund Objective

To maximise total return.

View on Past Performance

US equities fell further during the first quarter of 2008, driven lower by continuing housing market problems and financial sector dislocation. The S&P 500 Total Return Index lost 9.3%* while the New Star North America Fund shed 13.4%*.The biggest drags on fund returns came from its financial sector holdings, particularly Bear Stearns. This holding, plus those in Citigroup, Lehman Brothers, Merrill Lynch and Ambac Financial, accounted for almost half of the fund's underperformance over the quarter.At the quarter end, the financial sector as a whole offered an attractive investment opportunity for long-term investors. Valuations were at the trough levels of the early 1990s, and the authorities had taken unprecedented steps to resolve the crisis.There is, however, always the theoretical possibility of a run on any bank. In the case of Bear Stearns, just 48 hours before its takeover by JPMorgan, the company had ample liquidity and capital according to both its management and the Securities and Exchange Commission's chairman.

Future Expectations

Investors have experienced exceptional conditions and their fears were reflected in unusually low share prices for what appear to be fundamentally good businesses. It is worth remembering that one of the best performing sectors of the quarter was housebuilding.This occurred during a period when house prices fell further and a sense of crisis prevailed in the real estate market.The fund benefited from this through its holdings in Pulte Homes and KB Homes. It is probable that a similar pattern will develop in the financial sector.

Fund Details