Fund Objective

The Fund is very much led by stock selection. The aim is to identify improving situations which are not fully recognised by the market. The starting point is that earnings growth generally drives share prices.

View on Past Performance

Smaller company stock underperformed the wider market again in August as investor concerns over further contagion from the US sub-prime mortgage market weigh heavily on markets. UK equities posted slightly negative to flat returns for the month, with smaller companies retreating further. August was punctuated by volatility with a steep drop in the middle of the month followed by a sharp recovery as the month came to a close.The Fund's performance was affected by the volatility that hit UK equities in August, but held up better than many funds in its sector on the back of good stock selection. The Fund's monthly figures also benefited from a timing difference between when we price our funds and when other funds in the sector are priced. This difference has no long-term affect on the Fund's performance.Our holdings in construction company Rok and high-rise construction safety product specialist Latchways benefited performance after both released earnings results that were well ahead of market expectations. Care UK was negative on news of slower earnings, but we have faith in the company's long-term prospects have added to our position.Risk aversion and volatility in smaller company stocks during August provided numerous buying opportunities. We added to several favoured companies with good earnings visibility and long-term growth prospects, including stamp dealer Stanley Gibbons, engineering consultant WSP Group and wine merchant Majestic Wines.

Future Expectations

The long-term potential for smaller companies has not diminished, the underlying trading environment continues to be robust and we will take advantage of any stocklevel volatility to add to favoured positions. We are confident that the companies we hold represent good long-term value and the recent trading and outlook statements mostly remain buoyant.

Fund Details