Fund Objective

To achieve a reasonable and rising income combined with long term capital growth.

View on Past Performance

Equity markets fell sharply in September. Mining and oil companies continued to slide on weaker commodity prices and poorly capitalised banks continued to suffer. Sentiment is now very poor as investors have realised that deleveraging and recapitalising the banking system is likely to have a severe impact on the real economy. Our overall investment strategy has not changed as we focus on companies and industries rather than trying to second guess wider macro-economic developments.At an industry level, we are mindful of the amount of capital that has gone into property in all its forms and all the associated industries, such as construction and financial services. In contrast, there are industries where capital is being withdrawn (e.g. packaged holidays and reinsurance) and where longer term pricingdynamics are improving.

Future Expectations

The deleveraging of the banks is putting considerable stress on many other industries, rapidly removing inefficient operators. This bodes well for the best in class operators who will gain market share to add to what is often already a strong market position.Well-capitalised banks are also likely to benefit from this shake-out. Valuations of both investment grade corporate debt and equity markets look very attractive. If a resolution to the banking crisis can be found, then we would expect markets to make a material recovery from current depressed levels, despite the difficult outlook for the economy.

Fund Details