The Fund's investment objective is to achieve long term capital growth from a portfolio primarily made up of the shares of companies around the world. The Fund has a blend of investments in larger-, medium- and smaller-sized companies. The Fund Manager is not restricted in the choice of companies either by size or industry, or in terms of the geographical split of the portfolio, and the choice of stocks is largely determined by the availability of attractive investment opportunities.
Over the quarter, the fund significantly underperformed its benchmark. In volatile times such as these, I would expect the fund to underperform, since special situations investing is about taking risks. In an environment of heightened risk aversion, high-risk investments usually get sold down regardless of their fundamentals.September proved to be the period in which the fund was particularly hard hit. There were substantial losses in commodities and financials. Several energy stocks were hurt by the fall in commodity prices, despite the fact that the high prices were not discounted in valuations. Among financials, Lehman Brothers filed for bankruptcy and Wachovia experienced a liquidity run.I believed both firms had enough capital to survive, although a credit market freeze, which dried up short-term funding, drove them into a liquidity crisis. Meanwhile, US housebuilder Pulte Homes was the biggest contributor to returns. The company has a solid balance sheet and should be able to weather the current crisis.
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