Fund Objective

The objective is to achieve capital growth by buying shares in companies whose recovery potential is not appreciated by the market and to sell them when this potential is recognised. The nature of unrecognised recovery potential may be based on macro economic, industry, sector specific or stock specific issues.

View on Past Performance

September stands out as one of the most dramatic months on record for the financial world.As bankruptcies, nationalisations and rescue take-overs among major financial institutions became the norm, everyone looked to the US to save the day with its $700 billion package.Over the month, the FTSE 100 index fell 12.9%, the FTSE Small Cap index fell 15.0%, and the FTSE AIM index dropped 22.4%.There were few places to hide in such a volatile market - even those companies with strong balance sheets and reasonable earnings visibility took sharp tumbles. In fact, secular growth stories took more of a hit than cyclical companies on fears of a global recession and their higher ratings. Amidst the turmoil,we have tried to take a step back to examine the effects on the real economy.In light of the deteriorating UK economy, we are reluctant to increase our exposure to cyclicals, unless they have sufficiently strong balance sheets to withstand a meaningful drop in earnings, and that they still look cheap on that basis.We have identified a few such stocks, but given all the volatility, a gradual approach to buying seems sensible.However,we have taken advantage of the volatility in stocks that we know well - those with good visibility and strong balance sheets.

Future Expectations

Although surprises are currently rather too frequent for the market's liking, what is clear is that a US bail-out package must be agreed.What is less clear is how this will help the UK where fundamentals are far from stable.The ability to borrow will be restricted for some time, so it is crucial to back companies with strong balance sheets that can withstand a difficult domestic environment.We believe that the key is to stick with quality, rather than try and ride sentiment and sector rotations.Your fund has a strong cash position that allows us to take advantage of opportunities, but we will not gamble on debt-laden recovery plays. Our focus remains on balance sheet strength, earnings visibility and experienced management, as it is these companies that will survive and later flourish.

Fund Details