Fund Objective

The investment objective of the Growth Fund is to invest in regulated collective investment schemes which aim to achieve long-term equity growth.

View on Past Performance

The second quarter of the year brought a reminder that equities are not prone to move smoothly upward all of the time. Having risen strongly between January and April, global markets experienced a sharp sell-off during May, finally bringing to an end a prolonged rally stretching to over three years.This was prompted largely by concern that the US central bank, the Federal Reserve, might have to continue raising interest rates to a restrictive level in order to contain increasing inflationary pressures. Fear that this could precipitate a pronounced slowdown in the pace of global growth and fall in company profits led to a sudden increase in risk aversion among investors and as buying momentum within the market dried up, equities were marked down by profit taking.Emerging markets, which had risen farthest earlier in the year, saw some of the steepest falls as investors sought the security of lower risk assets. Government bonds were a beneficiary of this flight to safety. By mid June however, with no real scares on growth or inflation forthcoming, there was a feeling in the market that perhaps the correction had gone far enough.From there the market began to stabilise as bargain hunters returned, intent on snapping up oversold stocks at cheap prices. As expected the Fed raised US interest rates by 0.25% to 5.25% at the end of the month but the wording of its accompanying statement implied that an end or at least a pause in policy tightening could be imminent.This led to a sharp end of quarter rally in equities. During April, the UK bond market retreated along with other global bond markets in the face of an improving global growth outlook and the prospect of rising interest rates in several major economies. Bonds benefited from the flight to safety during May's volatile market conditions but yields then began to rise again in June as the equity market began to look more attractive.

Future Expectations

The pace of growth in the US is expected to slow to around the long-term trend rate later this year as consumers come under pressure to tighten their belts in the face of rising interest rates and a cooling property market. However, the pick up in growth in the eurozone and Japan should provide a counterbalance to this. Along with improving corporate earnings and the ongoing trend for consolidation among the companies, this should provide a backround for furhter equity market progress.There is little doubt that the pace of global growth will slow over the second half of the year as the impact of recent rate rises in the US and elsewhere is felt. However, it looks likely that the US will be in a position to stop raising rates before putting on the brakes too hard.With encouraging signs of resilience in the European and Japanese economies this means the global slowdown is likely to be moderate, gradually bringing growth back down to around its long term sustainable level. This is a supportive background for equity markets. Bond markets should also benefit from falling interest rate expectations.However, the continued withdrawal of liquidity from the market, resulting in part from Japan's move away from a zero rate interest rate policy, means that we are unlikely to see a repeat of the strong gains of last year.

Fund Details