Fund Objective

To provide long-term capital growth from investment in stocks and shares.

View on Past Performance

The UK stock market ended the quarter lower, along with global markets. The volatile period was dominated by worries about rising inflation, risks of weaker growth, volatile commodity prices, falling house prices and the ongoing financial market turmoil.The fund significantly underperformed its benchmark. Positive contributions from stock selection in banks and travel & leisure were outweighed by negative contributions from overweight positions and stock selection in mining and oil & gas producers.At the stock level, overweights in mining companies International Ferro Metals, Xstrata, Anglo American, Vedanta Resources, Kazakhmys, Rio Tinto and BHP Billiton detracted, while an underweight in Eurasian Natural Resources positively contributed in relative terms, as falling commodity prices and fears over slowing global economic growth weighed on the sector.Overweights in energy companies JKX Oil & Gas and Dana Petroleum also negatively contributed as the oil price fell. In contrast, an underweight in HBOS benefited relative returns. The mortgage lender found it increasingly difficult to secure funding on concerns over its exposure to the weakening UK housing market. Lloyds TSB agreed to buy the bank in a government-engineered deal.

Future Expectations

UK equities are at historically attractive levels. However, with economic growth faltering, ongoing financial sector difficulties, high borrowing costs, falling house prices and reduced consumption, the outlook for corporate profits appears weak. Markets are unlikely to normalise until borrowing rates normalise, banks recapitalise themselves, property prices stabilise and private sector credit demand begins to recover. Furthermore, earnings momentum needs to improve.

Fund Details