The investment objective of Liontrust First Large Cap. Fund is to provide long-term capital growth through investment in a portfolio of UK equities in companies which at the time of investment have market capitalisations which place them in the largest 350 companies ranked by market capitalisation listed on the Official List of the London Stock Exchange.
This is all fairly depressing stuff but at least UK equities are now cheap. At the end of September the FTSE All-Share Index was on a trailing yield of 4.6%, an attractive prospect in comparison to long-dated gilt yields of 4.5%. It is rare for the UK equity market to yield more than gilts. The last time this happened was for a very brief period in March 2003 when the bear market was at its nadir.This in turn was the first time equities had yielded more than gilts since 1959. As these statistics suggest, there is real stress in the financial system at the moment and equities are decidedly out of favour. There is value in the market at current levels but how equities do over the next 12 months is largely a function of whether confidence is restored by the actions of the US Treasury and Federal Reserve.It is stating the obvious to say the outcome is uncertain. However, in terms of the portfolio, it is even more important than usual not to be distracted by all the emotional cross currents and volatility in the market.Having a distinct investment process is vital in helping us steer the portfolio through a period when the equity market has, for most of the last quarter, felt completely out of control.We have had a frustrating few months as the vast majority of the 'winners' in the portfolio have delivered good fundamental news (leading to earnings' upgrades) but the dominance of macro factors (and panic) means many of these stocks have not had their 'good news' rewarded (in terms of shares prices). As a result the portfolio has underperformed the FTSE All-Share Index during the quarter.