European markets continued to rally during the third quarter, with the FTSE Europe ex UK index increasing by 5.6%. The economic recovery across Europe surprised on the upside, while - at the same time - lower oil and commodity prices led to an easing of inflation fears. The much anticipated strengthening of the euro versus the dollar failed to take place.M&A activity gained in strength from already high levels, with the focus on financials, utilities and pharmaceuticals. The fund outperformed over the quarter, benefiting in particular from the M&A in utilities (Iberdrola gained on bid speculation) and pharmaceuticals (Schwarz Pharma taken over by UCB of Belgium).The fund suffered from holding Atlas Copco which, although performing strongly over the last 12 months, fell back in the absence of news relating to the disposal of its rental subsidiary. Holdings in energy such as Total and Norsk Hydro also detracted from performance, both suffering in the wake of a lower oil price.Recent portfolio changes have focused on reducing the number of holdings and on upping our positions in high conviction stocks, with the focus increasingly on large cap defensives. As a result, the portfolio has a less cyclical bias, investing in companies whose profits provide stable growth and are less exposed to the fluctuations of economic cycles.
2,867.00p
