Fund Objective

Capital appreciation.

View on Past Performance

The fund returned -4.2% for the third quarter at a time when the MSCI World index fell -5.3% in sterling terms.Over the summer months poise seemed to be returning to markets. The risks to the financial system seemed well understood, and though there were some obvious areas of financial distress in the corporate sector they were related to excesses of the past. September, however, provided a rude awakening as it suddenly became apparent that the US financial system might be teetering on the edge of collapse.In a period unparalleled in recent financial history, institutions collapsed, were bailed out by the US government or forced into the arms of apparently stronger institutions. Against this background, individual share prices have been remarkably volatile and there have been some significant market moves. The areas where economic and financial adjustment has to occur should be well recognised, as is the prospect of a global economic slowdown.Emerging markets have been particularly weak, depressed by falling commodities prices and doubts about the strength of their domestic economies.

Future Expectations

Europe has underperformed, as its exports are threatened by slower global growth and a stronger euro. Remarkably though, the US has not significantly underperformed other weaker markets. Initially this may have been due to the benefits of a weak dollar, but more recently it could be attributable to a hope that the economy will be supported by the vast federal resources being thrown at the financial system.For sterling investors, however, the underlying weakness of world markets was partially offset by the depreciation of the pound versus the dollar. Over the weeks ahead, world markets will undoubtedly remain volatile until the scale and certainty of the US Government's rescue of the financial system becomes apparent. At that point attention will turn to the impact the turmoil has on real economic behaviour.

Fund Details